Financial markets ended the week in turmoil, shaken by rising concerns about the strength of US bank credit. Two regional banks, Zions Bancorp and Western Alliance, reported losses on certain loans—approximately $50 million in the third quarter of 2025 for Zions—some of which were linked to alleged fraud. While these cases appear, for now, to be isolated, they rekindle concerns about the quality of the sector's balance sheets: could other institutions be harboring bad debts that may not be repaid? These revelations come at a time already weakened by the recent bankruptcy of First Brands and Tricolor, two highly indebted companies operating in the automotive sector. These setbacks had already shaken market confidence, with Jefferies and UBS, among others, finding themselves caught in the storm. In this context, the words of Jamie Dimon, CEO of JP Morgan, resonate with particular acuity: "When you see one cockroach, there are probably others. Everyone needs to be warned," he warned recently. The message is clear: caution is called for in a booming private credit market, now valued at nearly $2 trillion. JP Morgan, which itself suffered a $170 million loss on Tricolor, nonetheless remains active in this segment: the bank has just granted, alone, a record $20 billion loan to the consortium about to acquire Electronic Arts—unheard of since the 2008 financial crisis. Other major institutions, however, are trying to reassure. BlackRock has clearly dismissed fears of contagion, while executives at Citigroup and Goldman Sachs emphasize the good quality of their credit portfolios, the diversification of collateral, and the limitation of risk concentrations. But the fears are not confined to the markets: they are even beginning to worry the Federal Reserve. The latter is closely monitoring the situation, particularly interbank liquidity, where several signs of tension are emerging: an increase in the secured repo rate (SOFR) and increased use of the Standing Repo Facility. For the time being, reported losses remain limited, but caution remains in order. If the difficulties were to spread and recall the bank failures of 2023, the Fed could be forced to strengthen its liquidity support measures, in addition to the upcoming halt to the reduction of its balance sheet, as mentioned by Jerome Powell last week. The Fed chairman also suggested that further rate cuts could occur by the end of the year, despite persistent disagreements within the committee over the appropriate monetary strategy.
Moreover, US banks aren't the only ones in the crosshairs. This morning, BNP Paribas' stock market plunged sharply, losing nearly 8%, following its conviction for complicity in atrocities in Sudan, handed down this weekend. At this stage, damages total $20 million to three plaintiffs, but the bill could rise if the ruling were extended to thousands of Sudanese refugees. BNP Paribas has confirmed its intention to appeal, but given the amounts at stake, an out-of-court settlement cannot be ruled out and could impact the bank's capital ratios.
On a more positive note, the markets this morning welcomed the signs of renewed dialogue between Washington and Beijing. Donald Trump has confirmed a meeting with Xi Jinping in two weeks, as China seeks to consolidate its growth trajectory after a third-quarter GDP growth rate slightly below 5%. The Communist Party's fourth plenum, which opens today, could provide a new boost to activity, notably through increased support for domestic demand.
In France, the political situation is stabilizing, paving the way for Parliament to examine the 2026 budget. The two motions of censure against Prime Minister Sébastien Lecornu were rejected, notably after concessions were made to the Socialist Party. The latter obtained a relaxation of the budgetary trajectory, the repeal of Article 49.3, and the "immediate and complete" suspension of pension reform until 2027—an additional cost estimated at €2.2 billion, which will have to be offset by savings. This calmer climate has encouraged a tightening of the OAT-Bund spread, now around 78 basis points, while the surprise downgrade of the French rating by S&P (from AA- to A+) has had only a limited impact. Caution remains, however: the adoption of the 2026 budget could prove tricky.
