(Bloomberg) — Financial firms ended February where they spent much of the month: enduring another dizzying blow from the threat of artificial intelligence and grappling with signs those cockroaches Jamie Dimon warned about in the world of private credit are starting to scurry.
The combination delivered another bruising selloff in shares of banks and asset managers Friday. The KBW Bank Index slumped 4.9%, dragging the group to levels last seen in early December. It’s the worst session since April’s trade turmoil. All 23 members slid at least 1.9%, with Western Alliance Bancorp, Goldman Sachs Group Inc. and Zions Bancorp NA among the worst performers.
Lenders, payments providers and asset managers have suffered a rolling barrage of blows this month, most prominently from new AI applications and private credit woes. Credit spreads have also started widening, and a Wall Street-backed UK mortgage lender collapsed, adding to fear that banks could face rising defaults in the opaque world of private lending.
Investment-grade bond markets, which had emerged as a safe haven during recent AI-driven swings in equities, are now showing some signs of strain. Globally, premiums on comparable debt have already widened by nearly 4 basis points this week, the largest move since early November, according to a Bloomberg index.
“More ‘cockroach’ concerns for banks,” Wells Fargo analyst Mike Mayo wrote in a note. “New credit issues give a reminder that credit cycles have not been eliminated. We continue to note that banks have grown loans this decade well below GDP, implying that larger risks lie among unregulated shadow banks.”
Friday’s rout was a continuation of a trend that’s been unfolding over the past few weeks, as AI worries have consumed nearly every part of the financial sector. Wealth managers, insurance brokers, big banks, boutique advisors, financial data providers and even exchanges have all taken a hit.
Block Inc. provided the latest jolt, when it cut nearly half its workforce in the latest sign that AI may threaten the livelihoods of a broad swath of professionals.
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The rolling beatdown hit wealth management-linked stocks earlier this month after Altruist Corp. unveiled a tool that helps financial advisors personalize strategies for clients and create pay stubs, account statements and other documents.
That followed a selloff in insurance brokerage stocks after an online marketplace rolled out a new application that uses OpenAI’s ChatGPT to compare auto-insurance rates.
The biggest blow came from a new model released last week by Anthropic that’s aimed at automating financial research and legal services, triggering selloffs in those stocks.
“Banks are entering into a more volatile period with unknowns on pace of AI adoption and disruption,” said Bloomberg Intelligence analyst Herman Chan. “Treasuries rallying on top of wider credit spreads signals a risk-off posture.”
The selling also engulfed credit card and payments providers, with shares of Synchrony Financial, American Express Co. and Capital One Financial Corp. closing down at least 6%. Alternative asset managers also plunged, with Apollo Global Management Inc., KKR & Co Inc and Ares Management Corp falling at least 5%.
“The market is selling anything remotely credit‑sensitive this morning,” Truist’s Brian Finneran wrote in a note to clients. “Specialists are more focused on AXP given the cleaner read‑through to potential white‑collar unemployment.”
Troubling signs are also mounting in the credit market just months after JPMorgan Chase & Co.’s Dimon warned that a blowup at an auto lender likely wouldn’t be a one-off.
Just this month, MFS creditors warned of a $1.3 billion from shortfall in collateral backing their loans, while BlackRock Inc.’s private debt fund sank after slashing its dividend, sending shares of other business development companies lower.
Private credit manager Invico Capital Corp. has crafted a plan for one of its funds to deal with redemption requests from large investors. Blue Owl Capital Inc. halted redemptions in one of its funds last week and decided to sell some assets to help pay investors. Its shares posted the worst month ever.
Meanwhile, up to $150 billion worth of leveraged loans held inside US collateralized loan obligations fall within sectors that are at risk of being disrupted by AI, according to JPMorgan Chase & Co. strategists.
“With the negative news on the credit market front out of Market Financial Solutions in London creating problems for firms like Apollo Group and Jefferies, investors are starting to worry about a contagion,” said Matt Maley, chief market strategist at Miller Tabak Co LLC. “Even if this does not become a contagion, there is still a risk that the growing problems in the credit markets will create losses for financial companies,” he said.
(Updates with closing shares, additional context.)
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