Zions and other regional bank stocks dive amid fraud loss

Regional bank stocks plunged Thursday after Zions Bank announced plans to write off $50 million in fraudulent loans to two borrowers, intensifying fears over weak lending standards and credit market stress.

Zions’ stock fell 13%, dragging the KBW Regional Banking Index down 6%. The bank is suing in California to recover the losses.

Meanwhile, another regional bank, the Arizona-based Western Alliance, also reported a fraud-related lawsuit. Its shares fell 5.4%.

The turmoil follows recent bankruptcies of auto dealer Tricolor and auto parts supplier First Brands, both accused of fraudulent borrowing practices. Tricolor’s collapse has already led to $170 million write-offs each by Fifth Third Bancorp and JPMorgan.

JPMorgan CEO Jamie Dimon highlighted the twin bankruptcies, saying, “When you see one cockroach, there are probably more, and so everyone should be forewarned of this one.”