Zions Bancorp (ZION) stock saw a 1,000% jump in retail chatter over the past week after it unveiled a $50 million charge-off related to defaulted commercial loans, raising worries over the health of the financial sector.

In a regulatory filing, the regional lender found "apparent misrepresentations and contractual defaults" involving two related commercial and industrial loans totaling about $60 million from its California Bank & Trust unit. It also said that it will take a $50 million charge off in the third quarter related to the bad loans.

The stock fell 13% on Thursday, losing about $1 billion of its market capitalization, as the defaults sparked concerns over the health of the banking sector. Separately, Western Alliance, in its own filing, earlier said that it has a note finance revolving credit facility to Cantor Group V, LLC, whose owners are the same as Zions Bancorp's borrowers. Western Alliance had sued the Cantor owners for fraud.

Why Were Markets Spooked?

The revelations by the U.S. banks spooked global financial markets, with banking stocks taking a hit. Another lender, Jefferies, said on Friday that the bank was“defrauded” by the auto supplier First Brands Group, which went bankrupt in late September after its creditors opened probes amid concerns over potential financial irregularities.

First Brands filed for bankruptcy protection in late September after its creditors began investigations due to alleged financial irregularities. Jefferies, however, assured investors that its estimated financial losses from the bankruptcy of First Brands were relatively low.

What Is Retail Thinking?

Retail sentiment on Stocktwits about Zions was still in the 'extremely bullish' territory at the time of writing, while the retail message volume surged 1,000%.

One investor noted that every time the stock dips under $50, it always bounces back.

What Are Analysts Saying?

According to TheFly, BofA analysts said that management will need strong communication on credit risk next week to restore confidence. However, the current sell-off appears to price in significant potential losses.

Baird analysts advised investors to load up on the company's shares, as they thought the magnitude of the pullback was overdone. A $1 billion market capitalization decline over a $50 million loss "seems a bit excessive," the brokerage noted.

Zions has fallen 9.2% this year, compared with the 12.7% gains of the Invesco KBW Bank ETF. Investors will be keenly waiting for the bank's earnings report, due on Monday.

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