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Recent credit issues among U.S. regional banks have garnered widespread attention, with some individuals drawing parallels to the panic seen during the Silicon Valley Bank incident in 2023, and even comparing it to the global financial crisis of 2008.

However, Citigroup's financial industry analysts Keith Horowitz and credit strategy chief Michael Anderson firmly dismiss such comparisons as completely unfounded and misleading. The two participated in an online live session organized by Citigroup to address investor concerns—specifically about whether last week's prominent credit default incidents hinted at deeper systemic risks.

Jamie Dimon, CEO of JPMorgan Chase, has widely referenced his now-famous "cockroach theory" (suggesting that visible risks are merely the tip of the iceberg), which has further exacerbated investor anxiety.

Horowitz refuted claims of "significant problems at regional banks." He stated, "This has nothing to do with 2008; I rate all regional banks as a 'buy.' There is no similarity between the two, and the current issues are purely due to fraud."

He was referring to announcements from Zions Bancorp and Western Alliance concerning overdue loans linked to a commercial real estate company called Cantor. Zions mentioned "obvious false statements," while Western accused them of fraudulent behavior. Additionally, JPMorgan reported a $170 million loss from loans to the subprime auto lender Tricolor.

Horowitz pointed out that 95% of the banks under his coverage face no credit issues, with delinquency rates either meeting or exceeding expectations, and consumer spending trends remaining positive.

Concerns about a "credit crisis spreading" have chiefly centered on loans to non-deposit financial institutions (NDFIs). Horowitz estimated that such loans account for approximately 20% of total loans in the regional banking sector and are largely issued through asset securitization, which carries relatively low default risks.

When questioned about recent defaults involving First Brands and Tricolor in the auto industry, Horowitz reassured investors: that sector is "problem-free and in excellent condition." He explained that auto loans typically have shorter terms, and loans that might pose issues were predominantly issued before interest rate hikes in 2022, with most now maturing, comprising only about 10% of total loans. Banks are fully prepared for 2026 and 2027.

Anderson also opined that there is currently no genuine cause for concern. Bank credit spreads have narrowed by about 15 basis points compared to the previous quarter, showing no signs of pressure; he is confident that with regulatory easing, potential Federal Reserve rate cuts, robust M&A activity, and a stable stock market, bank lending remains in an expansionary cycle. He viewed the specific issues faced by regional banks last month as "individual cases."

Citigroup’s Chief U.S. Economist Andrew Hollenhorst also participated in the live session, confirming that the Federal Reserve is unlikely to take action at this stage—because the current losses are too minor to have an impact, and there are no signs of tightening in financial conditions, nor any genuine risk aversion or interbank lending avoidance.

Horowitz noted that the third-quarter financial reports of banks are performing well, with positive credit indicators. Revenue from payment services and wealth management is contributing to fee income, and capital levels remain robust.

He anticipates that over the next 12 months, regional banks will outperform larger banks—many regional banks have unrealized losses on their loan books, but these losses are unlikely to materialize, ultimately translating into earnings momentum and driving double-digit growth in earnings per share over the coming years. He is optimistic about the sector, with top picks including Ally Financial Inc., US Bancorp, and Citizens Bank.

Interestingly, Zions Bancorp reported better-than-expected third-quarter results this week. By Tuesday, its shares closed at $51.98, compared to $55 before the crisis erupted.