It has begun… The 2007 crash repeats itself – Zions and Western Alliance banks reel as the debt ghost returns

The bankruptcy of First Brands shatters regional banks.

The collapse of First Brands, a giant in the auto parts industry, has triggered massive concerns over hidden debts and risky loans threatening regional banks.
With revelations of billions in off-balance-sheet liabilities and exposure to fraudulent investors, institutions such as Zions and Western Alliance have reported their first major losses.
Fears of a new round of banking turmoil are reigniting, as cheap credit and excessive lending risk shocking the market.
After months of optimism driven by artificial intelligence and interest-rate cut expectations, the ghost of debt has returned to Wall Street.

Regional banks rocked

The financial shock from the bankruptcy of auto-parts giant First Brands has rippled across the system, inflicting heavy losses on shares of several regional and other banks.
Stocks across a range of financial institutions tumbled as investors feared that the collapse of First Brands could mark the beginning of a broader financial crisis.

DoorDash, Guardant Health, and Zions in the spotlight

First Brands, best known for selling essential car components such as oil filters, brake pads and wipers, officially filed for bankruptcy last month after investors discovered billions of dollars in undisclosed private debt.
Among the revelations: roughly $2 billion of investor money could not be accounted for.
The disclosure triggered a collapse in investor confidence.

The bankruptcy of First Brands, which had been heavily exposed to the opaque private-credit market, has alarmed investors who now fear more bad loans may be hidden on bank balance sheets.
Those concerns intensified after two regional banks — Zions Bancorporation and Western Alliance — disclosed exposure to loans granted to allegedly fraudulent borrowers.

Zions, based in Salt Lake City, said it will take a $50 million loss in the third quarter due to two loans it had issued.
Similarly, Western Alliance of Phoenix filed a lawsuit against a borrower who failed to provide collateral for his loans.

The anxiety did not stop there.
The SPDR S&P Regional Banking ETF (KRE), which tracks regional lenders, fell 6% on Thursday.
Twelve of the fifteen biggest decliners in the S&P Midcap 400 Index were regional banks.

The fallout from the First Brands bankruptcy

Jefferies was also found to have exposure to the First Brands collapse, as the Wall Street firm had dealings with the controversial auto-parts giant across several business lines.
Its stock has fallen 25% over the past month.

Jefferies had extended about $48 million in loans to First Brands.
Executives said any potential losses from the bankruptcy could be “managed immediately,” according to a statement issued this week.
Over the past five years, First Brands had built up a heavy debt load after acquiring more than 20 companies.
The firm filed for bankruptcy in late September and is now under federal investigation for its use of off-balance-sheet financing.
Jefferies had originally estimated First Brands’ debt at $5.9 billion, but bankruptcy advisers have since determined that the actual figure is $11.6 billion, according to The Wall Street Journal.

Echoes of the 2023 banking crisis

Earlier in September, Tricolor, a subprime auto-finance company, also filed for bankruptcy.
Fifth Third Bank reportedly faced about $200 million in exposure when Tricolor Auto Group collapsed.
Reports also indicate that JPMorgan and Barclays had exposure as well.

The sharp decline in bank stocks has reignited fears of a repeat of the 2023 banking crisis, which began with the failure of Silicon Valley Bank — a collapse triggered by poor management of U.S. Treasury bond portfolios.

Jefferies’ top executives urged investors not to overreact:
“We believe the impact on our stock value and credit profile has been overstated, and we expect this to correct soon as facts and the full scope of outcomes become clearer,”
said CEO Rich Handler and President Brian Friedman.

The social ghost of debt

Wall Street already had a full plate this week — rare earths turning into geopolitical flashpoints, the AI trade stumbling under whispers of a bubble, a government shutdown choking vital data flows, and a labor market flashing red warnings — all while stocks remained inflated, fat and complacent.
For months, Wall Street had been feeding on optimism about rate cuts and artificial intelligence.
But this week, the waiter brought something no one ordered: the return of the debt ghost.

Zions and Western Alliance took their turns opening the trapdoor beneath the market’s confidence.
Zions admitted to a $50 million loss from questionable commercial loans issued through its California branch, while Western Alliance revealed that a borrower had failed to deliver the promised collateral — financial code for fraud.
Both were exposed to the now-bankrupt First Brands, the same auto-parts company that scorched the subprime loan portfolios of JPMorgan and Fifth Third last month.
Suddenly, the déjà vu of 2023 — when regional banks wobbled — didn’t feel so distant.

The worst possible timing

The timing couldn’t be worse.
Overblown optimism surrounding AI is fading, and beneath the surface, the credit system is seizing up.
Regional bank stocks have crashed, gold has soared above $4,300, and bond yields have dropped as traders are once again forced to rediscover the meaning of volatility risk.
When bond yields and equities fall together, it’s not a bull market — it’s flight-to-safety mode.
Analysts repeated the old refrain — “isolated incidents” — but the market has heard that tune before, and it rarely ends on a happy note.
These “one-off” cases are starting to rhyme, and that’s what unnerves professionals: not the numbers, but the pattern.
This isn’t yet a systemic collapse — at least not yet — but it’s a reminder that at the end of a market cycle, credit risk doesn’t disappear; it simply hides until liquidity starts to dry up.

Weakness in the credit market

Wall Street has been busy debating AI valuations, tariff politics, and the Federal Reserve’s timing — but behind the curtain, leverage is quietly eroding.
The ghosts of Tricolor, First Brands and now Zions whisper the same warning: the era of cheap credit may be over for now, and its hangover is seeping through the stock market’s forced smile.
Meanwhile, the Fed sits center stage, ready to cut rates to support a slowing economy — but those cuts may now be seen less as insurance and more as containment.
Rate relief helps duration and equities, not delinquencies.
Once credit quality begins to crack, the problem shifts from the yield curve to the balance sheet.

A metaphor for the moment

If there’s a metaphor for this moment, it’s this: Wall Street’s table is overloaded — rare earths, overpriced AI valuations, a looming government shutdown, labor-market jitters, and now credit risk laced with fraud.
The lights are flickering, and the cockroaches are back.
Traders know the rule:
When gold shines this bright and regional banks start whispering “loss recognition,” you don’t look for dessert — you look for the exit.

Because in debt, as in life, the monsters aren’t under the bed — they hide in the footnotes.

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