European banks suffer a punishment on the stock market due to fear of the ‘cockroach crisis’ in the US

Friday of punishment for European banksin which only BBVA securities are saved, boosted by the failure of its takeover bid for Banco Sabadell – the shareholders support its buyback plan and the capital cushion it has once the operation does not go ahead. The listed entities of the Old Continent are suffering from the fear of what is called ‘cockroach crisis’ in the United States. This situation is caused by the bankruptcy of several companies in the country and the fear of a possible domino effect that could translate into problems for the financial system of the largest economy in the world – and could drag down the rest.

In this case, it was the simultaneous collapse of vehicle components supplier First Brands and subprime lender Tricolor that put Wall Street on alert about the situation of consumer loans and, specifically, those intended to purchase cars. Subprime loans or subprime They were already the origin of the last financial crisis.

An increase in default in a certain economic sector (that cockroach that suddenly appears alone) could cause problems in the most exposed banks and end up affecting the entire financial system and the rest of the economy (that systemic risk would be represented by all the other cockroaches that suddenly appear where there seemed to be only one). This scheme was not only fulfilled in the Great Crisis, but also, although to a lesser extentin which it affected US regional banks in 2023.

European banks accuse the stock market of doubts about the situation of some entities in the United States due to their possible exposure to non-performing loans. “I get alert when things like this happen (…) “When you see one cockroach, there are probably more.”Jamie Dimon, CEO of JPMorgan Chase, the largest US bank by assets, warned this week in a conference call with analysts following the publication of results.

Dimon is the last of the CEOs of large American banks still active after the financial crisis. At the head of JPMorgan and at the request of the Federal Reserve – which sought to avoid a major collapse – it rescued Bear Stearns, an investment bank that failed in 2008 due to its high exposure to mortgage-backed securities and high debt.

The bankruptcy of these two firms has led many debt investors to review their possible exposure to these companies and sectors. “We have had a bullish credit market most of the time since 2010. (…) These are early signs that there could be some excess because of it. “If we ever have a recession, we will see many more credit problems,” Dimon added.

In a comment prior to the start of the session, Bankinter analysts recalled that the shares of several US regional banks plummeted on Thursday (recording their biggest drop since ‘Liberation Day’ in April, when Donald Trump announced massive tariffs for his trading partners) due to delinquency problems at two firms: Zions Bancorp and Western Alliance. The first revealed that it has sued the investment funds Cantor II and Cantor IV and demands the 60 million that it lent them and that they used to acquire packages of commercial mortgage loans in difficulty.

“Amid concerns about growing credit risks in the sector, this information has worried investors,” Bankinter explains. The defaults of Tricolor and First Brand have highlighted “the high levels of debt and the opaque and complex nature of the financing structures.” They also generate distrust about the risk assessment standards in the field of private credit in the United States, a market that exceeds 1.5 trillion dollars, according to the manager Edmond de Rothschild. “The lack of transparency has increased the perception of risk in these markets and could intensify the risk of contagion to other private borrowers” with high debt, they add.

Within European banking, those most punished at the close of Friday’s session were the German Deutsche Bank (-6%) and Bawag Group (-5.8%), the Bank of Ireland (-5.7%), Barclays (-5.6%) and French Societe Generale (-5.1%). Although Sabadell heads the list with a drop of more than 6.7%, in this case the price is weighed down by the departure of arbitrage funds after the failure of the takeover bid. BBVA (5.98%). In fact, the group of Basque origin leads the climbs, being the only one from Stoxx Banks to end the day positively along with the Austrian Raiffeisen Bank International (+1.15%) and the Swiss Cembra Money Bank.

As a whole, the index ends the day with a decline of 2.5%, among which the falls experienced by Santander Bank (-3.3%) and CaixaBank (-3.12%), in line with BNP Paribas and Commerzbankwhich slow down more than 3%. Close to this percentage, Unicredit, Bankinter and Intesa Sanpaolo about 2% are left.