David Solomon urges vigilance as regional bank losses stir credit market debate

Goldman Sachs chief executive David Solomon is urging credit market participants to review their risk management practices after a series of losses at regional banks, but he maintains that the recent incidents are not signs of a broader systemic threat.

“It is interesting that we’ve had three events that on the face seem to be three idiosyncratic events,” Solomon said in a CNBC interview Tuesday. “Three idiosyncratic events does not make a trend or a systemic issue by any stretch.”

Solomon added that, given the long stretch without a full credit cycle, “it’s an appropriate time for people that are significant players in credit markets ... to be looking at their portfolios, thinking about their risk-management practices.”

The latest wave of concern began last month with the bankruptcy of subprime auto lender Tricolor Holdings, which triggered near-total losses for some debt holders. That was followed by the collapse of First Brands Group, an auto-parts supplier with more than $10 billion in debt owed to major Wall Street firms.

Shortly after, Zions Bancorp disclosed losses tied to alleged fraud involving loans to investment funds connected to Southern California real estate investors. Western Alliance Bank revealed a similar obligation as it launched a lawsuit alleging fraud against Cantor Group V, LLC, though it maintained in filings with the SEC that it has enough collateral to cover the obligation.

Read more: Fallout from First Brands bankruptcy ripples through credit markets

The string of setbacks has weighed heavily on bank stocks. The KBW Regional Banking Index dropped more than 6% last Thursday before recovering some ground, and is down nearly 5% for the year. The selloff has fueled speculation about a new wave of mergers and acquisitions, as larger banks may look to absorb smaller or more vulnerable rivals.

“Stock market activity and valuations have always driven M&A conversations, so it is possible that the current market movements could speed up those conversations,” Dan Hartman, a lawyer at Nutter, told Reuters.

Industry sources told the news outlet that credit worries could prompt boards at smaller banks to consider selling, especially if weakness persists. However, the higher risk of acquiring banks with potential credit issues may give some buyers pause.

An unnamed senior executive noted that, unlike the 2023 regional banking crisis, today’s credit losses are often aggregated and only disclosed if they reach a material threshold, making it harder for investors to assess risk.

Read more: Regional bank shares tank after distressed mortgage loans fraud claims

Despite the market anxiety, some analysts see little evidence of a systemic problem. Marc Pinto, head of global private credit at Moody’s Ratings, said separately on CNBC, “when we dig deeper here and look to see if there’s a turn in the credit cycle ... we can find no evidence. Now that’s what we’re seeing today. That could always change. But if we look at the asset quality numbers that we’ve seen over the last several quarters, we’re seeing very little deterioration at all.”

Default rates on high-yield debt have remained under 5% this year and are expected to fall below 3% in 2026, well below the levels seen during the 2008 financial crisis. Pinto also pointed to stronger-than-expected GDP growth and an anticipated decline in interest rates as factors supporting credit quality.

Still, some industry leaders are sounding a note of caution. During his firm's third-quarter earnings call last week, JPMorgan chief executive Jamie Dimon told analysts that “when you see one cockroach, there are probably more ... Everyone should be forewarned on this.”

(Correction: An earlier version of this story incorrectly suggesting that Western Alliance Bank reported losses. We regret the error.)