The US financial sector experiences another wave of selling on Friday. What happened?

U.S. stock markets opened on Friday with heavy selling in the banking, asset management, and financial services sectors. In addition to concerns that artificial intelligence could pose systemic risks to the financial system, the collapse of the UK mortgage company MFS, backed by Wall Street support, has also shaken confidence in the private credit industry.

As of press time, the KBW Bank Index in the U.S. fell over 5%, approaching the largest single-day decline since the tariff shock in April last year. Major Wall Street firms Goldman Sachs and Morgan Stanley both dropped more than 7%, while Wells Fargo, Citigroup, and Bank of America also declined over 5%.

(Source: TradingView)

As the latest “horror story” of AI impacting the real economy, fintech company Block announced on Thursday that it will cut its workforce from over 10,000 to less than 6,000, citing AI-driven productivity improvements. Just a week ago, the market had experienced concerns about AI disrupting broad economic sectors, with wealth management being the first to be affected.

Meanwhile, credit spreads are widening. The mortgage company MFS was placed into insolvency proceedings in the UK, sparking a new wave of concerns about private credit quality. Institutions under Apollo Global Management, Jefferies, and TPG are among MFS’s creditors.

As of press time, Jefferies fell over 10%, Apollo Global Management dropped more than 8%, and KKR and TPG also declined.

Latest data shows that MFS has a “double pledge” issue, which could lead to a shortfall of £930 million on its £1.2 billion debt. Double pledge refers to the same collateral being used to secure multiple financing arrangements without proper disclosure. This situation also occurred in last year’s bankruptcies of First Brands and Tricolor, known as “credit roaches,” which caused significant losses for deceived institutions.

Miller Tabak+ chief market strategist Matt Maley said, “The negative news from MFS about the credit market has already started causing trouble for companies like Apollo and Jefferies, and investors are beginning to worry about a ‘contagion effect’. Even if it doesn’t evolve into a systemic contagion, the ongoing deterioration in the credit market still poses a risk of losses for financial firms.”

This round of selling also affected credit card and payment service providers, with American Express dropping over 6%.

Bryan Finneran, a financial industry expert at Truist Securities, wrote in a client report: “This morning, the market is selling off everything even slightly sensitive to credit. In comparison, the market is more focused on American Express because it more directly and clearly reflects potential white-collar unemployment risks.”

(Source: Caixin Global)