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Bond Market News
US Regional Banks Disclose Exposure to Bad Loans
October 17, 2025
Regional US lenders Western Alliance Bancorp and Zions disclosed exposure to alleged loan fraud involving funds that invest in distressed commercial mortgages, heightening concerns over credit risks at regional banks. Zions took a $50mn charge-off on a fraudulent loan issued by its California Bank & Trust unit, and Western Alliance revealed loans to the same borrowers. Both banks have filed lawsuits claiming the borrowers used credit facilities to buy distressed mortgage loans but diverted or misrepresented collateral. Western Alliance also alleged fake title policies and drained collateral accounts. The incidents follow recent credit blowups at Tricolor Holdings and First Brands Group, which caused losses for larger lenders like JPMorgan and Fifth Third. While major banks can absorb such hits, analysts warn that similar exposures pose greater risks for smaller regional banks, reflecting growing fragility in the US credit markets. Shares of Zions fell 13% while Western Alliance dropped 11% yesterday.
Western Alliance’s 3% 2031s dropped by 1.1 points to trade at 95.3, yielding 10.72%.
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