Banking stocks slump as sector fears grow
Banking stocks across Europe have fallen once again, as fears of contagion resurface following the collapse of three US banks and UBS’s rescue of Credit Suisse in recent weeks. Germany’s Deutsche Bank, the biggest lender in the country, is among the hardest hit, as the cost of insuring against bank defaults surged.
The Euro Stoxx banks index is down by 4.6%, while the UK’s banks index lost 3.7%. This comes after a turbulent week, despite reassurances from German chancellor Olaf Scholz, French president Emmanuel Macron and European Central Bank president Christine Lagarde that the banking system is stable.
Fruitful discussions with Europe’s leaders at today’s Euro Summit.— Christine Lagarde (@Lagarde) March 24, 2023
The euro area banking sector is resilient, but we must keep working to strengthen our union. pic.twitter.com/wmBczwMkks
Lagarde cited strong capital and liquidity positions, along with regulatory reforms agreed internationally after the global financial crisis, as reasons for resilience in the euro area banking sector. However after the bailout and buy to of Credit Suisse that statement hardly filled the market with confidence.
Deutsche Bank shares fell for a third day by as much as 15% and are currently trading 10% lower, after a sharp jump in the cost of insuring its bonds against the risk of default to a four-year high.
Paul van der Westhuizen, senior strategist at Rabobank, said while the German giant has had its problems, there are fundamental differences between Deutsche and Credit Suisse:
“Deutsche is a bank that has had its own issues with regulators, it has also seen profit volatility and gone through a restructuring.
There is a fundamental difference in that Deutsche has returned to profitability over the last few quarters, whereas Credit Suisse did not have a profitable outlook for 2023 at all.”
The sell-off came at the end of a turbulent week, and despite attempts by German chancellor Olaf Scholz, French president Emmanuel Macron and European Central Bank president Christine Lagarde to assure investors and the public that the banking system is stable.
Lagarde told EU leaders, according to Reuters, which spoke to EU officials who attended the meeting:
The euro area banking sector is resilient because they it has strong capital and liquidity positions.
The euro area banking sector is strong because we have applied the regulatory reforms agreed internationally after the global financial crisis to all of them.
The ECB is fully equipped to provide liquidity to the euro area financial system if needed.