European banks slide as concerns remain over health of financial sector following US bank sell-off
European banking stocks slid again on Thursday, following a sell-off in the US on Wednesday, as investors remain nervous about the health of the financial sector.
European banks were mostly in the red around midday: French banks Socgen and BNP Paribas fell 1.6 per cent, Deutsche Bank slipped 1.5 per cent while Commerzbank fell 3.1 per cent. UBS was down 3.9 per cent.
The European wide Stoxx 600 banking index was down 2.1 per cent.
Market concern in Europe came on the back of another bad day for US banks yesterday.
Stocks in US banks slid after Treasury Secretary Janet Yellen ruled out blanket deposit guarantees for US banks.
Speaking at a Senate hearing on Wednesday afternoon, Yellen said: “I have not considered or discussed anything to do with blanket insurance or guarantees of deposits.”
Yellen said uninsured deposits would only be protected if the bank posed a systemic risk to the financial system.
Markets interpreted the comments as a reversal from a speech Yellen made at the American Bankers Association the day before.
Bank stocks slid following the comments. Shares in First Republic, which had seen a recovery on Tuesday, fell over 15 per cent. Western Alliance Bancorp fell 5.0 per cent while Pacwest Bancorp slumped over 17 per cent. The KBW Bank Index slid 4.7 per cent.
The Wall Street giants also suffered, with JP Morgan ending 2.6 per cent lower, Citi 3.0 per cent lower while Wells Fargo and Bank of America both closed 3.3 per cent down.
However, Finalto’s Neil Wilson noted that almost any bank collapse would be seen as systemic in the current environment.
“Yellen has indicated the US government would step in if required,” he said.
“But you have to ask yourself, what bank wouldn’t be considered systemically important in the current environment? If another bank goes – be it First Republic or another – it would cause waves not ripples,” Wilson continued.
Problems in the banking industry also impacted the Fed’s fight against inflation. While it raised interest rates by 25 basis points, Chair Jerome Powell suggested that policymakers might be more reticent in future.
The crisis in US banks is likely to restrict lending , helping to tighten monetary conditions. Powell suggested it “might equal rate hike or perhaps more than that”.
Hargreaves Lansdown’s Susannah Streeter said “policymakers will also be assessing the extent to which the banking scare will be a disinflationary force by leading to a knock-on effect on lending which could hit company investments and consumer spending.”
But Streeter suggested the Fed is more likely to focus on price stability: “The need to stop inflation becoming embedded is likely to be the priority,” she said.