Moody’s downplayed contagion fears after regional bank sell-off, citing strong asset quality and resilience
Concerns over bad loans at midsize United States banks rattled markets last week, but Moody’s Ratings moved to calm nerves, arguing there is “little evidence” of a systemic problem in the banking system or private credit markets.
Marc Pinto, Moody’s head of global private credit, said in a CNBC interview that while isolated incidents have triggered anxiety, “one cockroach does not a trend make.”
Market jitters after regional bank disclosures
The sector’s volatility intensified after Zions Bancorp and Western Alliance Bancorp revealed losses tied to bankrupt auto lenders, sparking a broad sell-off in bank stocks Thursday.
The SPDR S&P Regional Banking ETF tumbled 6.2% before rebounding 2% in premarket trading Friday. The sell-off also dragged down shares of Jefferies, which had disclosed exposure to a bankrupt auto parts maker earlier this month.
JPMorgan Chase CEO Jamie Dimon stoked further concern, remarking on an earnings call, “when you see one cockroach, there are probably more.”
Pinto, however, pushed back on that narrative. “When we dig deeper here and look to see if there’s a turn in the credit cycle, which is effectively what the market seems to be focusing on, we can find no evidence,” Pinto said.
“Now that’s what we’re seeing today. That could always change. But if we look at the asset quality numbers that we’ve seen over the last several quarters, we’re seeing very little deterioration at all.”
Credit fundamentals remain strong
Pinto pointed to default rates on high-yield debt, noting they have remained below 5% this year and are projected to fall under 3% by 2026. During the 2008 financial crisis, defaults reached the low double digits.
“With respect to GDP growth, we’re doing much better than many people thought just six months ago,” Pinto said.
“So again, the credit conditions, looking at GDP growth as well as an expected decline in interest rates, we feel the credit quality is in a pretty good place today and potentially may improve.”
Market rebound signals renewed confidence
Moody’s reassurances helped spur a rebound in the Dow Jones Industrial Average, which closed up 0.40% after earlier losses.
The day’s trading reflected a shift from safe-haven assets like gold—which saw gold stocks fall even as prices hit a record—back into equities as risk appetite improved.
Despite sharp losses at some regional banks, Moody’s and other experts found no signs of a wider credit crisis. The quick market rebound showed investors still trust the sector’s strength, though careful monitoring of loan quality and lending standards remains important.
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