Wall Street has been worried about bad loans for weeks. Now those fears are spreading

By Elisabeth Buchwald, CNN

(CNN) — Several financial groups are wrestling with bad loans, raising worries on Wall Street of more to come.

For weeks, investors have focused on Jefferies Financial Group, an investment bank that has at least $45 million worth of exposure to First Brands, an auto-parts supplier that filed for bankruptcy last month.

But on Thursday, they turned some of their attention to two regional banks, Western Alliance Bancorp and Zions Bancorp, after concerns about some of their loans as well.

All three banks’ stocks suffered their steepest single-day losses in over six months on Thursday. That anxiety played out in the market at large as well, with the Dow shedding 0.65% that day. Meanwhile, investors flocked to safe havens, including US Treasuries, gold and silver.

If all this is bringing back memories of the 2023 regional banking crisis, you’re not alone. For now, it’s unclear if there’s a risk to the broader market or if this is just a few bad eggs.

What’s happening with Jefferies?

Jefferies, like several other financial groups, offered funding to First Brands through a scheme known as third-party factoring, when a business promises to repay lenders when one of its customers pays an outstanding balance.

But creditors allege First Brands used the same invoice multiple times to access funds from private lenders that were unaware of the double dipping. Translation: Lenders like Jefferies might not have provided financing to First Brands if they had had a more complete picture.

All told, Jefferies’ $45 million exposure to First Brands represents less than 5% of its pre-tax income from last year, meaning its exposure to First Brands alone is unlikely to cause it to shutter.

Jefferies CEO Rich Handler and president Brian Friedman stressed that in a statement issued earlier this week aiming to calm investors.

But investors seem more concerned about whether Jefferies missed warning signs in this case, which reportedly is being investigated by the Department of Justice for potential fraud, and if it’s missed similar signs elsewhere. The company declined to comment.

What’s going on with Western Alliance and Zions?

Both stocks sank by over 10% on Thursday following disclosures that they lent to businesses they claimed defrauded them.

Zions (ZION) said in a Wednesday filing with the Securities and Exchange Commission that it anticipates losing $60 million as a result.

Western Alliance (WAL) didn’t share how much it expects to lose. Instead, it shared in a Thursday morning filing that it “initiated a lawsuit alleging fraud by the borrower.” Because of this, it said it now has more loans at risk of not being repaid.

Representatives from Zions and Western Alliance didn’t respond to CNN’s requests for comment.

Should you brace for more market worries?

As JPMorgan Chase CEO Jamie Dimon said this week, before details emerged about Zions and Western Alliance: “When you see one cockroach, there are probably more.”

And JPMorgan isn’t exactly in the clear either. It’s poised to suffer $170 million from soured loans to Tricolor, another company that declared bankruptcy last month. JPMorgan is the nation’s largest bank, and there are no allegations of fraud at Tricolor.

But the question is: How many other cockroaches are there?

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