The backbone of Europe’s strong start to 2023 was dealt a blow on Friday as the region’s bank stocks tumbled on concerns that signs of distress at a Californian lender could be an indicator of broader dangers.
The Stoxx 600 Banks Index slumped as much as 4.9 per cent at the open, the biggest drop since June. Germany’s Deutsche Bank and Commerzbank posted the steepest losses, the former falling more than 9 per cent. Irish banks led the Iseq Overall Index lower in Dublin. Bank of Ireland fell 4.6 per cent by 10.52am while Permanent TSB and AIB dropped 3.4 per cent. The wider index slid 1.9 per cent.
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Banks have been at the forefront of Europe’s stock market outperformance in 2023 as rising interest rates boost margins and lenders announce large returns to investors through buy-backs and dividends. Optimism toward the sector was dealt a blow late Thursday after Silicon Valley-based SVB Financial Group took steps to shore up its capital position, stoking concern that soaring rates are eroding balance sheets across the financial industry.
SVB slumped 23 per cent in US premarket trading, adding to Thursday’s 60 per cent losses. Other US banks were also poised to extend the previous day’s steep drops, with JPMorgan Chase and Bank of America both down 1 per cent.
“It surely shows how nervous the market is after all when problems at a relatively small Californian bank are enough to shake Wall Street’s financial behemoths,” said DWS Group chief investment officer Bjoern Jesch.
Adding to the souring sentiment was Silvergate Capital, which said it plans to wind down operations and liquidate after the crypto industry’s meltdown sapped the company’s financial strength.
The KBW Bank Index, which includes US regional lenders, sank 7.7 per cent on Thursday, its biggest drop since June 2020. Financial stocks in Asia followed suit, with the region’s banks falling the most in three years. – Bloomberg
