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Wharf Rats: Rising Credit Concerns & Fraud Hurt Financial Stocks
- 1 day ago
- 5 min read
Updated: 14 hours ago
November 3, 2025 | Whalen Global Advisors has released the WGA Bank Top 50 for Q4 2025. The top 10 banks in our test group are shown below:
The WGA Top 50 Bank list represents the best performers among more than 100 banks over $10 billion in total assets. WGA scores the entire population of large publicly traded bank holding companies in Peer Group 1 and unitary banks each quarter using a proprietary model where size is only one factor in the analysis.
Most bank ETFs, for example, select portfolio members solely based upon market capitalization. Thus relatively small stocks such as SoFi Technologies, Inc. (SOFI) or American Express Company (AXP) are absent from most passive portfolios even though they are among the top market performers in our test group.
The WGA approach ensures that the top scoring banks have the highest rank on the WGA Bank Top 50 list regardless of size. In Q4 2025, we made some changes to our methodology to increase the weight of market performance and decrease the weight of fundamental factors that tend to be relatively stable over multiple periods. We focus heavily on fundamental factors in our updates of the money center, consumer lender and asset gather categories. All of the 100 constituents of the WGA Bank Top 50 are available to subscribers to The IRA Premium Service.
Forbearance, Fraud Mask Growing Credit Contagion
There has been a great deal of movement among the top 100 banks tracked by the WGA Top Bank model. Two small banks dropped out of Peer Group 1 due to M&A in Q3 2025, but more that 70 banks have been acquired so far this year. For example, Synchrony Financial (SYF) ranked 1st in Q3 2025, but fell to 21st in Q4 2025 due to market performance. AXP ranked 12th in Q3 2025, but jumped to 1st in the latest test results.
A number of institutions, including Zions Bancorporation (ZION) and Western Alliance (WAL), fell significantly in this quarter’s rankings due to concerns about credit losses arising from alleged fraud involving collateral backing loans. Defaults on commercial and multifamily real estate continue to rise, adding to pressure on financial stocks.
WAL ranked 19th in Q3 2025, but fell to 73rd in Q4 2025. ZION ranked 33rd in Q3 2025, but fell to 69th out of 100 banks in Q4 2025. Likewise JPMorgan (JPM) and other large banks have given ground in recent weeks because of concerns about undisclosed credit losses hidden in portfolios. Indeed, more than half of the bank stocks in our test group have fallen in market value since the end of the third quarter, reflecting growing concerns about credit market contagion.
As we have predicted for some time now, credit concerns have finally surged into the foreground as events of default such as Tricolor and First Brands have underscored concerns about credit and related acts of fraud involving collateral. The concern is no longer merely about cockroaches in the world of credit, to paraphrase JPMorgan CEO Jamie Dimon. Now the appearance of wharf rats in the world of corporate defaults suggests that the scope of fraud in the financial markets is far larger than most observers appreciate.
Francesca Veronesi and Kat Hidalgo of Bloomberg News confirmed last week that growing numbers of private equity portfolio companies are in default, but have merely begun payment in kind (PIK) via equity distributions to avoid actual recognition of default. "Private credit firms are in the business of lending, not owning," they write. "But as more borrowers start to struggle with their liabilities, lenders are swapping their debt positions for equity stakes to try and stem losses." When lenders become equity holders involuntarily, that usually suggests fraud in the extension of credit previously contracted.
Press reports suggest that mortgage fraud attempts and losses are increasing, and multiple specific instances of significant fraud have occurred, impacting banks and nonbank lenders. Meanwhile, Blackstone (BX) has reportedly been hit with a $500 million fraud involving bogus accounts receivable issued by a little known telecom-services companies called Broadband Telecom and Bridgevoice, the Wall Street Journal reports.
As we note in a recent article published by The Daily Reckoning, “The Bezzel: Is it 1925 All Over Again?,” that tales of woe regarding the Fed-fueled credit boom in commercial real estate and private credit will continue to grow in number in 2026. When it comes to fraud, cockroaches are an inconvenience, but wharf rats carry the plague and are an existential threat.
We expect that US banks will be revealing more surprises in the weeks and months ahead, but PIK and forbearance by banks continues to obscure the full reality of the problems in credit. Just as wharf rats are associated with the bubonic plague because they are the primary carriers of the fleas that transmit the bacteria, involuntary credit forbearance by banks and investors is rotting the foundations of the global financial markets.
Subscribers to The IRA Premium Service may download the full 100 bank test group by logging into the website and navigating to the page for the WGA Top Bank 50.
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