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Over the past week, there has been a clear divergence between safe-haven assets, namely gold and Bitcoin. While gold surged 7.4%, hitting a new all-time peak of $4,379, Bitcoin declined by 8.4%, revisiting the late June level of $105k. Year-to-date, gold is greatly outperforming Bitcoin, at 60.5% vs 9.2% respectively.

This divergence is unfolding amid major regional banking weakness. This year, only two banks have fallen, Chicago-based Pulaski Savings Bank in January and the Santa Anna National Bank in late June. However, over the last month, regional banking stocks have suffered a steep drop, as evidenced by the performance of SPDR® S&P® Regional Banking ETF (KRE). Alongside Bitcoin’s -9.5% decline, the KRE ETF fell -8.2%.In particular, on Thursday, Zions Bancorp announced a $50 million charge-off stemming from two defunct loans from its San Diego-based subsidiary, California Bank & Trust. Likewise, related to the same borrower, Western Alliance Bancorp filed a lawsuit alleging fraud by the borrower Cantor Group V, LLC, according to August’s court filing, which only recently became publicly known.

Although Cantor Group V is not linked to the global financial services firm Cantor Fitzgerald, it doesn’t take much for contagion to spread, as seen during the regional banking crisis in Q1 2023, which had the effect of rallying Bitcoin. Of particular concern is the bankruptcy filing of First Brands, potentially indicating a broader trend of incoming bad loans.

First Brands Business Model

Based in Michigan, First Brands Group, LLC, supplied customers with automotive aftermarket parts. Specifically, the company pursued the acquisition of smaller auto part companies to build an extensive portfolio of aftermarket parts, which then serviced leading retailers such as AutoZone, Advance Auto Parts, O’Reilly Auto Parts, and others.

According to Stellar Market Research, the aftermarket sector has shown mixed performance over the last six years, with a downward growth trajectory since 2021.

The aftermarket parts sector is primarily negatively affected by technological advancement. Case in point, the adoption of EVs decreases demand because electrified vehicles have fewer moving parts, reducing the need for fluids, brake components, and traditional engine parts.

Additionally, the ‘smartification’ of cars with sensors/software and advanced driver-assistance (ADAS) systems greatly increases parts complexity and cost, disadvantaging independents. On the economic front, e-commerce players sidestep traditional channels, putting pressure through price competition and direct OEM part sales with integrated warranties.

Perhaps more importantly, sustained inflation lowers disposable income, placing additional pressure on the demand for aftermarket parts. In fact, disposable income correlates highly with the above chart, showing a spike in the stimulus year of 2021, with little growth since.

Real disposable personal income per capita over the last five years. Image credit: Federal Reserve Bank of St. Louis

Lastly, the U.S. economy appears to form a ‘K-shape’, showing widening inequality across income levels and asset classes. According to the latest JPMorgan Cost of Living survey conducted by Matthew Boss, “survey results indicated a notable bifurcation.”

This too negatively affects the aftermarket parts sector as lower and middle-income consumers struggle, causing them to either delay vehicle maintenance or opt for cheaper repairs that cut into aftermarket demand.

First Brands Bankruptcy

On Wednesday, the Office of the U.S. Trustee, under the U.S. Department of Justice overseeing bankruptcies, officially started an investigation in First Brands, justifying it by stating there are “ample grounds to suspect that current members of the debtors’ boards or executive management team may have engaged in actual fraud, dishonesty, or criminal conduct in the management of the debtors’ business affairs.”

On September 24, 2025, the company filed for Chapter 11 bankruptcy with the meeting of creditors set for October 30. The filings showed $11.6 billion in First Brand’s total liabilities, with potential $2.3 billion unaccounted for, according to finance firm Raistone as one of the creditors.

It appears that First Brands was spreading financial contagion. Specifically, by selling its customer invoices to third-parties in order to accumulate cash faster. These third-parties, either banks or specialty finance companies, then paid First Brands upfront of the invoice value, earning a percentage spread.

Financial Contagion Potential

First Brands’ customer invoice payments appear to have occurred before customers actually paid for their invoices. Moreover, there is concern First Brands double-sold the invoices. In short, effectively acting as creditors, these third-party financiers may have been left exposed, holding claims to invoices that either no longer exist or were already committed elsewhere.

Irrespective of the legal fraud issue, the more important question is whether the market condition itself drove First Brands to engage in this practice. In other words, if other companies from other sectors adopted the same approach, regional mid-sized banks could face contagion due to double-pledged collateral,. This could render their assets on the books as impaired or worthless.

According to US investment bank Jefferies, which had $715 million tied to the First Brands bankruptcy through Point Bonita and Leucadia Asset Management funds, the fallout should be limited.

“Relative to the scale of Jefferies, we are confident that any losses or expenses from these investments or otherwise in respect of First Brands can readily be absorbed and do not threaten our financial condition or business momentum.”

Jefferies President Brian Friedman and CEO Richard Handler

Western Alliance Bancorp also holds multiple lending facilities tied to Leucadia Asset Management, but investors should expect more disclosure on October 22 for the bank’s Q3 earnings report.

Relative to its $1.6 trillion balance sheet ending June, Swiss UBS has minor First Brands exposure of just over $500 million. Yet, if First Brands proves not to be an isolated case, but an early signal of tightening liquidity, mid-sized lenders are facing deeper fragility. This could make for a repeat of the early 2023 regional banking crisis.

As a result, such stress may end up pulling Bitcoin ahead of gold by the year’s end.

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