London
CNN
—
European bank stocks tumbled on Friday as investors acted on their lingering worries that the recent crisis crisis in some banks maybe spill over into the broader field.
Europe’s Stoxx Europe 600 Banks index, which tracks 42 major EU and UK banks, closed 3.8% lower. The index is down 18% from its late-February high. London’s bank-heavy FTSE 100 index closed down 1.3%.
Shares in Germany’s largest bank, Deutsche Bank
(DB), fell as much as 14.5% before paring losses to close 8.6% lower. Shares in UBS
(UBS) and Credit Suisse
(CS) down 3.6% and 5.2% respectively.
The cost of insurance against Deutsche Bank’s default on its debt has skyrocketed in recent days. Deutsche’s five-year bad debt swaps (CDSs) jumped to 203 basis points on Thursday, according to data from S&P Market Intelligence. That was their highest level since early 2019.
Swaps rebounded on Friday to trade at 208 basis points by midday ET.
German Chancellor Olaf Scholz said on Friday that there was “no reason to worry” about Deutsche Bank.
“It’s a very profitable bank,” he told reporters in Brussels, where EU leaders issued a joint statement describing the European banking system as “resilient, with strong capital position and liquidity.”
Deutsche Bank declined to comment.
Michael Hewson, head of market analysis at CMC Markets, said: “The growing premium on CDS premium debt is weighing heavily on Deutsche Bank, as well as other European banks, due to concerns about the impact. of interest rate hikes on the economy as a whole and on banks’ balance sheets”. , told CNN.
Last week, the European Central Bank stuck with the plan interest rate increase by half a percentage point, judging that inflation poses a greater threat to the economy than recently turmoil in the banking sector.
Then on Thursday, the Bank of England raised its key interest rate by a quarter of a percentage point after data showed unexpected inflation last month.
But Susannah Streeter, head of currencies and markets at investment platform Hargreaves Lansdown, told CNN that market sentiment is deviating from reality.
“Contagion worries have grown again although a lot of deposits appear to have flowed into the German lender since bank fears broke out and it is thought that the bank have capital reserves in excess of regulatory requirements”.
Some analysts said investors were worried by Deutsche Bank’s announcement on Friday that it would return one of its bonds five years before the maturity date. Investors often interpret such a move as a sign that a company is in good financial standing and can repay creditors early.
But — following the collapse of two banks in the United States and the emergency takeover of Credit Suisse this month — some investors might interpret the announcement as a sign that Deutsche Bank is worried about the state of the industry. banks and are trying to overcompensate, Jonas Goltermann, deputy chief market economist at Capital Economics, told CNN.
Goltermann said the bank’s decision “seems to have backfired.”
Deutsche Bank’s decision to return bonds ahead of time was pre-planned and was not a response to recent market developments, a source familiar with the matter told CNN. The source said the bond will gradually lose its eligibility as a form of legal capital under rules introduced after the 2008 financial crisis.
They added that the bank replaced the bond by issuing another bond of the same type in February.
Shares of Commerzbank of Germany
(CRZBF) and France’s Société Générale also suffered heavy losses, closing 5.5% and 5.9% lower, respectively.
Last week, Switzerland’s largest bank UBS bought its controversial Swiss rival for 3 billion Swiss francs ($3.25 billion) in one emergency takeover brokered by the Swiss government.
That has helped restore some calm to markets rattled by the failure earlier this month of two US regional banks. But investors profited again on Friday.
The collapse of UBS and Credit Suisse followed Bloomberg reports On Thursday, the US Justice Department was investigating whether its employees helped Russian oligarchs evade Western sanctions.
The DOJ sent subpoenas to those employees before UBS took over Credit Suisse, according to the report.
Employees at several major US banks are also part of the investigation, Bloomberg said.
Hewson at CMC Markets said the “DOJ investigation into UBS certainly contributed to the weakness in share prices” at European banks.
UBS and Credit Suisse declined to comment to CNN.
