Markets were spooked by issues at two regional lenders that look like credit problems, but investors may be missing a bigger picture -- Federal Reserve policy that should both support banks and boost stocks.

Bank shares were derailed Thursday when Zions Bancorp and Western Alliance flagged problems with loans. It came eerily a few days after JPMorgan CEO Jamie Dimon said credit risks were like pests: "When you see one cockroach, there's probably more."

There may be a link between loan issues at Zions and the bankruptcies of two auto companies last month, including subprime lender Tricolor Holdings.

This raises two questions. One was highlighted by the IMF this week: how much risk has built up in nonbank lenders? More pointed is whether Tricolor's troubles mean lower-income borrowers are struggling -- an economic red flag.

Investors have panicked in part because warnings from Zions and Western Alliance are a reminder of the 2023 collapse of Silicon Valley Bank. That failure came near the peak of quantitative tightening, which shrinks bank reserves, but the Fed has recently signaled it will soon finish its monetary tightening cycle, easing pressures.

The Fed is also on track to keep cutting interest rates, which will benefit lower-income borrowers -- and stocks. Remarks from central bankers this week reiterated more rate cuts are coming, and futures markets have priced in 50 basis points of rate reductions this year.

Both of these factors suggest bank fears may be overplayed.

More immediately, this looks like further market chop amid a government shutdown that has limited the release of official economic data. This has left stocks to whipsaw as investors search for signals and find only noise from trade tensions, AI trends -- and now bank stresses.

Investors would do best to keep an eye on cockroaches but not burn the house down prematurely.

-- Jack Denton

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More Credit 'Cockroaches' Could Be Lurking At Banks

Investors are worried about a bumpy road ahead for credit markets, with regional banks a particular focus. Disclosures by Zions Bancorp and Western Alliance on Thursday ratcheted up the fears, which were already elevated by the bankruptcies of two auto-related companies last month.

   -- Zions said it recently became aware of legal actions initiated by several 
      banks against parties affiliated with two of its borrowers, and is taking 
      a $50 million third-quarter charge-off as part of a $60 million provision 
      related to the loans. Some speculate the borrowers are the bankrupt 
      auto-related companies Tricolor and First Brands. 
 
   -- Western Alliance also came under scrutiny for its loans to non-depositary 
      financial institutions. In a securities filing it reaffirmed its 
      full-year guidance. But after it sued a borrower in August, it said 
      Thursday that existing collateral should cover the borrower's obligation. 
 
   -- The KBW Regional Bank index fell 6.3%. Jamie Dimon, CEO of the biggest 
      U.S. bank JPMorgan said this week that credit risks are like cockroaches, 
      you see one, there are likely more. And IMF managing director Kristalina 
      Georgieva expressed concern during the IMF/World Bank meetings in 
      Washington. 
 
   -- It doesn't appear either bankrupt company holds wider implications about 
      the economy. For Tricolor, some worry that its lower-income consumers may 
      have fallen behind on interest payments, potentially a signal the 
      lower-end of the economy is buckling, Sevens Report's Tom Essaye says. 

What's Next: Evercore ISI analyst John Pancari sees Zion's announcement as the latest credit issue related to fraud or bankruptcies within the non-depository financial institution space, and expects it to stay top of mind for investors and to fuel "added apprehension around bank NDFI exposures."

-- Teresa Rivas and Janet H. Cho

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In U.S.-China Rivalry, Hard Line Postures But Open to Talks

The U.S.-China rivalry exploded this past week with a trade version of "he started it first." Both countries took a hard line against each other while stressing they still wanted to talk. It was China's turn on Thursday, disputing U.S. descriptions of its actions.

   -- China's Ministry of Commerce wants the U.S. to reconsider President 
      Donald Trump's threats of additional 100% tariffs on Chinese goods and 
      other restrictions. A spokesperson defended China's recent moves, 
      including yet-to-be implemented export restrictions on critical minerals. 
 
   -- Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson 
      Greer have described China's new export restriction regime as trying to 
      put a chokehold on the global supply chain of materials used for 
      everything from laptops to defense equipment, while China says this is a 
      distortion of its measures. 
 
   -- The Ministry of Commerce clarified its controls are limited to rare earth 
      magnets and related components already on its restricted exports list and 
      said all compliant export applications for nonmilitary use would be 
      approved. That clarification could help de-escalate tensions. 
 
   -- That said, these types of export controls -- not tariffs -- lie at the 
      center of the U.S.-China trade conflict and are unlikely to be resolved 
      anytime soon, as both sides use them as a source of leverage in their 
      growing rivalry. 

What's Next: Beijing stressed that China is ready to resume negotiations about each side's concerns in an "equal-footed dialogue." Emily Kilcrease, former deputy assistant at USTR, said that even if Chinese leader Xi Jinping and Trump have a successful meeting this month, "we should treat any truce as fragile."

-- Reshma Kapadia and Janet H. Cho

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Oracle Fights Low-Margin Cloud Claims, Raises Revenue Outlook

An update from Oracle had a mixed response from investors. While the technology giant's stock got a lift when executives reassured investors about the profitability of a business renting servers to AI companies, that shifted suddenly as CFO Doug Kehring outlined companywide targets through 2030.

   -- Oracle pushed back on a story that ran on news website The Information 
      last week, which said gross profit margin at Oracle's fast-growing AI 
      cloud server-rental business was surprisingly low at 14%. 
 
   -- Oracle attributed a low gross margin to the rapid expansion of 
      data-center expenses before customer contracts go live, and said the 
      actual gross margin across the entire life of the contract is 35%. 
 
   -- The company also updated its long-term outlook for the AI cloud 
      server-rental business, raising its forecast for 2030 revenue from $144 
      billion to $166 billion -- a 75% annual growth rate from $10 billion in 
      fiscal 2025. 
 
   -- Kehring also outlined the new companywide targets, announcing a fresh 
      revenue goal of $185 billion in 2029 and $225 billion in 2030. The 
      company expects both revenue and earnings per share to grow at around 30% 
      a year in that span. 

What's Next: Underlying the new projections is Oracle's backlog of contracted work, now worth more than $500 billion. But $300 billion of that is a single multiyear contract with OpenAI. It remains to be seen if the artificial intelligence giant can find the funding to fulfill its end of the deal.

-- Adam Levine and Elsa Ohlen

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Who May Benefit From the Threat to Ban China's Cooking Oil

Earlier this week, President Trump said he might cut off cooking oil imports from China in retribution for Beijing's decision to halt imports of American soybeans. The move isn't about ordinary American kitchens, but about the supply of used cooking oil that goes into making biofuel, such as renewable diesel.

   -- Cooking oil is vegetable or seed oils used for food. It's extracted and 
      then refined, bleached, and deodorized. Archer Daniels Midland and Bunge 
      are big U.S. producers. Later, used cooking oil $(UCO)$ is filtered and 
      reprocessed for fuel by companies like Darling Ingredients and Chevron 
      Renewable Energy Group. 
 
   -- This is where China comes in. The rise of renewable diesel mandates amid 
      climate change concerns created demand for UCO, and was a hot commodity. 
      China is one of the biggest UCO exporters, mainly to the U.S., Europe, 
      and Singapore. Clean energy priorities under the 2022 Inflation Reduction 
      Act also spurred demand. 
 
   -- In 2024, China's UCO exports to the U.S. reached a record 1.27 million 
      metric tons, or 43% of its total UCO exports, according to the 
      Agriculture Department. The exclusion of foreign-sourced feedstocks from 
      tax credits plus tariffs have since crimped that flow to the U.S., 
      however. 
 
   -- Chinese traders could redirect their UCO elsewhere such as the European 
      Union. Even if they can't find alternative buyers in a short time, the 
      total value of the trade -- about $1.2 billion in 2024 -- is dwarfed by 
      the nearly $13 billion of American soybeans sold to China last year. 

What's Next: Banning Chinese UCO would likely benefit oilseed processors, as biofuel producers would be compelled to turn to alternative sources. In the U.S., soybean oil is the dominant feedstock thanks to its wide availability. The biofuel industry also taps animal fats and agricultural waste.

-- Evie Liu and Liz Moyer

***

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October 17, 2025 06:59 ET (10:59 GMT)

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