European bank stocks fall sharply as investor nervousness resurfaces
European bank stocks tumbled on Wednesday, led by a tumble in Credit Suisse shares after the Swiss lender’s largest shareholder said it would not provide it with more capital.
In Europe, the Euro Stoxx Bank Index fell 6.4 percent as Credit Suisse shares fell more than a fifth in value. Société Générale lost 9.6 percent, Bank of Ireland 9.2 percent and BNP Paribas 8.8 percent.
Credit Suisse shares fell to a new low of CHF 1.99 on Wednesday after the governor of the Saudi National Bank, which bought a 10 percent stake in Credit Suisse last year, ruled out further financial support from the Swiss lender.
Spreads on the bank’s five-year credit default swaps – which indicate investor sentiment on the likelihood of defaulting on debt – widened to 565 basis points on Wednesday, from 350 basis points earlier in the month.
The sell-off in bank stocks put renewed pressure on a sector already reeling from the fallout of the Silicon Valley bank collapse, dragging broader equity markets in Europe lower.
The benchmark Stoxx 600 fell 1.8 percent, the bank-heavy UK FTSE 100 1.8 percent and France’s CAC 40 2.5 percent as investor jitters continued for a third day.
Neil Birrell, chief investment officer at Premier Miton, said that investors, already nervous after the collapse of the SVB, were right to be worried about Credit Suisse.
“These are not all isolated cases, the fear of infection is clear,” he said. “Credit Suisse has been in a bit of a shaky state for a while, it’s not surprising you’re getting people going.”
The yield on the two-year US Treasury bond, which closely tracks interest rate expectations and moves inversely with price, gave up early gains to fall 0.1 percentage point to 4.1 percent. The yield on the 10-year bond, which underpins the global cost of borrowing, also reversed, falling 0.08 percentage point to 3.55 percent.
The yield on 10-year German Bunds fell by 0.2 percentage points to 2.27 percent. The yield on the two-year note fell 0.3 percentage points to 2.61 percent.
Earlier in the day, stocks in Asia had rallied as traders bought financials after heavy selling earlier in the week.
Japan’s Topix was up 0.7 percent, South Korea’s Kospi was up 1.2 percent and Australia’s S&P/ASX 200 was up 0.9 percent. Hong Kong’s Hang Seng index rose 1.5 percent. The Topix Banks Index in Japan rose 3.3 percent after suffering its sharpest decline in three years on Tuesday.
US stocks rallied on Tuesday as fears of contagion to the banking sector from the SVB collapse eased. New data also showed that inflation had slowed but was still high at 6 percent.
Futures contracts tracking the benchmark S&P 500 were flat, while those for the tech-heavy Nasdaq Composite rose 0.2 percent. The indexes closed up 1.6 percent and 2.1 percent respectively on Tuesday.
The persistently high inflation data comes at a difficult time for the US Federal Reserve as it grapples with the demise of three banks and broader financial stability concerns, fueling speculation that it may have to halt interest rate hikes sooner than expected.
The European Central Bank meets on Thursday to decide on its next rate hike. Investors are pricing in an 82% chance of a 50 basis point gain, assuming much of the chaos SVB has caused has not spilled over into markets across the Atlantic.
In the currency markets, the dollar index, which measures the greenback against six peer currencies, rose 0.1 percent. Sterling was flat against the dollar ahead of British Chancellor Jeremy Hunt’s spring budget.
Oil prices gave up early gains, with both Brent crude and West Texas Intermediate, the US benchmark, trading 0.1 percent lower.
https://www.ft.com/content/9f9d48e9-c326-4745-b21c-8d024226e40e European bank stocks fall sharply as investor nervousness resurfaces