Despite concerns about bad loans at mid-sized U.S. banks, there is little sign of a systemic problem, according to a senior analyst at Moody's Ratings.
Marc Pinto, head of the agency's global private credit division, acknowledged in an interview on CNBC's “Squawk Box” that there are concerns about loose lending standards and some laxity in the conditions that institutions attach to loans.
However, when looking at the system as a whole, there is no apparent risk of contagion that could trigger a broader financial crisis, he said.
“If we dig deeper here and look to see if there is a reversal in the credit cycle that the market actually seems to be focusing on, we can't find any evidence,” Pinto said. “That's what we're seeing today. That could change at any time. But when we look at the asset quality numbers we've seen over the last few quarters, we see little deterioration.”
Bank stocks sold off aggressively across the board on Thursday after Zions and Bancorp and Western Alliance Bancorp disclosed that they were holding bad loans related to the bankruptcies of two auto lenders. The worries have hit shares in investment bank Jefferies this month after it disclosed some exposure to bankrupt auto parts maker First Brands.
Losses hit across the industry on Thursday as fears grew that the threat could spread even further. JPMorgan Chase CEO Jamie Dimon raised some eyebrows earlier this week when he said on the bank's earnings call: “If you see one cockroach, there are probably more.”
“One cockroach doesn’t make a trend,” Pinto said.
In fact, Pinto said high-yield debt default rates are relatively low this year, below 5%, and are expected to fall to below 3% in 2026. In comparison, defaults on high-yield debt during the 2008 financial crisis were in the low double digits.
At the same time, the U.S. economy has proven stronger than expected, Pinto added, despite ongoing concerns about labor market weakness and the impact that President Donald Trump's tariffs could have on inflation and consumer demand.
Pinto said he was at a conference with about 2,000 bankers this week, “and one of the words I keep hearing is resilience.”
“In terms of GDP growth, we are doing much better than many thought six months ago,” he said. “So when we look at credit conditions and look at GDP growth and an expected decline in interest rates, we think credit quality is in pretty good shape today and could potentially improve.”
After a sell-off on Thursday, market sentiment appeared to improve on Friday.
The SPDR S&P Regional Banking The exchange-traded fund, which tracks leading middle-market stocks, fell 6.2% on Thursday but rose 2% in premarket trading on Friday.