By Gina Heeb

Regional banks came under renewed scrutiny Thursday after Zions Bancorp said it would take a large loss and revealed accusations of fraud against a set of borrowers who had ties to a number of other lenders in the industry.

The disclosures helped send bank stocks reeling to their worst day since President Trump's tariffs hammered the market in April, evidence of how on edge Wall Street is after the recent high-profile bankruptcies of auto supplier First Brands and auto lender Tricolor.

It wasn't clear how widespread any pain would be from the new allegations, which center on a set of investment funds that are now being sued by several banks.

Salt Lake City-based Zions said it has filed a lawsuit to recover more than $60 million it had lent to investment funds Cantor II and Cantor IV. The funds had used the revolving credit facilities to purchase distressed commercial mortgage loans, Zions said.

Phoenix-based Western Alliance Bancorp is seeking to recover roughly $100 million from Cantor Group V, an entity managed by the same leadership team, according to Zions' lawsuit.

A lawyer for the individuals behind the group of Cantor funds, Andrew Stupin and Gerald Marcil, wasn't immediately available for comment

Zions and Western Alliance shares fell 13% and 11%, respectively. Those banks were among the hardest hit by a crisis of confidence in the industry after Silicon Valley Bank and First Republic collapsed in 2023.

In a statement, Western Alliance said it has "sufficient confidence" in its credit portfolio to affirm its guidance.

On Thursday, investors dumped shares of banks broadly, particularly smaller ones whose business models have been increasingly challenged by the dominance of the megabanks. An index of regional banks dropped 6.3%, while the broader KBW Nasdaq Bank Index fell 3.6%, both their worst days since April.

Investors have been anxious about more potential credit blowups after the collapse of First Brands and Tricolor raised broader questions about underwriting standards.

Shares of Jefferies Financial Group fell more than 10% Thursday after The Wall Street Journal reported on the firm's deep ties to First Brands and the company provided an update to an investor meeting.

The Zions loans didn't appear to be related to those bankruptcies, according to Evercore analyst John Pancari, and instead "represent a different borrower issue."

Bankers have maintained there is no wider reason for concern, though JPMorgan Chase Chief Executive Jamie Dimon has warned he's watching.

"When you see one cockroach, there are probably more," Dimon said.

In third-quarter results, large banks reported that consumers have continued to spend and borrow at a healthy clip. Executives contended that the recent credit blowups were isolated one-offs, rather than signs of broader systemic problems. Regional and community banks are set to report over the next few weeks.

"You can always say, well how many idiosyncratics does it take until you see a cycle, which can be a fair point," John Stern, chief financial officer at U.S. Bancorp, said in an interview. "But when you pull it all together at this point," the bank hasn't seen any evidence of deterioration.

KeyCorp CEO Chris Gorman said there could be more stress for companies ahead, in part because of a difficult business environment related to tariffs and other factors. But he called the recent credit events one-off events.

"I'm not surprised to see a few of these things tip over," he told the Journal.

Bank stocks had stabilized over the past year, after the sharp declines in the wake of 2023, helped by deregulation and hopes that deal activity would pick up in the highly fragmented industry. But this week has shown how fragile that recovery may be.

"Anything that shakes that confidence will lead to the type of stock movements that we've seen over these last couple of days," said Timur Braziler, an analyst at Wells Fargo. "Perception sometimes becomes reality or it mirrors reality."

Write to Gina Heeb at gina.heeb@wsj.com

(END) Dow Jones Newswires

October 16, 2025 17:30 ET (21:30 GMT)

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