Citigroup Analysts Dismiss Regional Bank Crisis Comparisons to 2008

Recent credit issues at U.S. regional banks have sparked widespread concern, with some drawing parallels to the 2023 Silicon Valley Bank panic and even the 2008 global financial crisis. However, Citigroup financial industry analysts Keith Horowitz and Michael Anderson emphatically state that such comparisons are unfounded and misleading. Horowitz and Anderson participated in a Citigroup-organized online broadcast to address investor concerns about whether the highly publicized credit default events of the past week indicated deeper systemic risks. The now-famous “cockroach theory” comment from JPMorgan Chase CEO Jamie Dimon (implying that risk exposure is just the tip of the iceberg) has fueled investor anxiety. Horowitz dismissed the assertion that “regional banks have significant problems.” “This has nothing to do with 2008. I have 'buy' ratings on all regional banks. There's nothing similar. The current issue is purely fraud-driven,” he said. Horowitz is referring to announcements by Zions Bancorp and Western Alliance: the two banks are involved in a delinquent loan issue with a single commercial real estate company named Cantor. Zions cited “clear misrepresentations,” while Western Alliance accused the other party of fraud. In addition, JPMorgan Chase also reported a $170 million loss on loans to subprime auto lender Tricolor. Horowitz noted that 95% of the banks he covers have no credit issues at all, that delinquency rates are either in line with or better than expectations, and that consumer spending trends remain positive.

Concerns Focus on Lending to Non-Depository Financial Institutions

Recent market concerns about a “spreading credit crunch” are primarily focused on lending to non-depository financial institutions (NDFIs). Horowitz estimates that these loans account for about 20% of total regional bank loans, and most are made through asset securitization, reducing default risk. When asked about the auto industry, which was involved in the recent defaults of First Brands and Tricolor, Horowitz again reassured investors that the sector “has no issues and is in great shape.” He explained that auto loans are typically short-term, that potentially problematic loans were mostly made before the 2022 interest rate hikes and have now largely matured, and that they account for only about 10% of total loans. Banks are well prepared for 2026 and 2027. Anderson similarly believes there is no real cause for alarm at present. Bank credit spreads have narrowed by about 15 basis points compared to the previous quarter, with no signs of pressure. He is confident that bank lending remains in an expansionary cycle, driven by easing regulations, Federal Reserve rate cuts, strong M&A activity, and a robust stock market. He considers the specific problems encountered by regional banks last month to be “isolated incidents.” Citigroup Chief U.S. Economist Andrew Hollenhorst also joined the aforementioned broadcast, confirming that the Federal Reserve will not take action at this time because the current scale of losses is too small to have an impact, there are no signs of tightening financial conditions, and there is no real risk aversion or evidence of interbank lending avoidance. Horowitz pointed out that bank third-quarter earnings reports are good, and credit indicators are positive. Payment and wealth management businesses contribute fee revenue, and capital levels remain robust. He expects that regional banks will outperform larger banks over the next 12 months—many regional banks have unrealized losses on their loan books, but these losses are unlikely to ever materialize and will ultimately become an earnings driver, propelling double-digit EPS growth in the coming years. He is bullish on the sector, and top picks he monitors include Ally Financial Inc., US Bancorp, and Citizens Bank. Interestingly, Zions Bancorp posted better-than-expected third-quarter results this week. As of Tuesday, its stock price was $51.98, while the price before the crisis was $55.