Germans in eye of storm as bank stocks plummet
Germans in the eye of the storm as bank stocks plummet: Major banks across Europe plummet as another wave of panic hits the global financial sector
- Deutsche Bank fell as much as 15% after the cost of insuring its debt skyrocketed
- The stock eventually closed up 8.5% and posted losses of 28% for the month
- It triggered a renewed sell-off in major European financials
Major banks across Europe crashed yesterday as another wave of panic hit the global financial sector.
In the eye of the storm was German lender Deutsche Bank, which fell as much as 15 percent after the cost of insuring its debt against default rose to a four-year high in what many took as a sign of distress. The stock ended up down 8.5 percent and was down 28 percent for the month.
It sparked another sell-off in major European financials, with rival German bank Commerzbank slipping 5.5 percent while France’s BNP Paribas and Societe Generale fell 5.3 percent and 6.1 percent, respectively.
In Italy, Milan-based Unicredit, the country’s only systemically important bank, lost 4.1 percent, Dutch financier ING 3.7 percent and UBS 3.6 percent on the Swiss stock exchange.
British banks were also caught up in the carnage, with Barclays ending the day down 4.2 percent or 5.88 pence at 133.9 pence, Standard Chartered down 6.4 percent or 40.6 pence to 591.8 pence , NatWest fell 3.6 per cent, or 9.6 pence, to 258.5 pence, Lloyds was down 2.4 per cent, or 1.14 pence, to 45.72 pence and HSBC fell 2.6 per cent, or 14.2 pence to 534 pence.
The uncertainty weighed on the FTSE 100 Index, which closed down 1.3 percent or 94.15 points at 7405.45. Meanwhile, the German Dax fell 1.7 percent and the French CAC 40 also fell 1.7 percent.
The Frankfurt Deutsche – one of Europe’s largest banks – has now lost more than a quarter of its value this month.
Alongside crisis-ridden Credit Suisse, the bank also had a long history of scandals and controversy. Although its fortunes have improved following a major restructuring, it is still considered one of Europe’s weakest banks.
Credit Suisse succumbed to an emergency takeover by Swiss rival UBS last weekend as authorities struggled to restore calm.
Three US lenders also collapsed this month – Silicon Valley Bank (SVB), Signature and Silvergate – while larger Wall Street rivals pumped £25 billion into First Republic Bank to prop up its finances.
Bank stocks also tumbled in New York as panic crossed the Atlantic. Several EU leaders rushed to quell the panic that has roiled financial markets for the past two weeks.
Chancellor Olaf Scholz yesterday dismissed concerns about Deutsche Bank, saying it had “fundamentally modernized” and was “very profitable”.
“There’s no reason to worry about it,” he said.
Meanwhile, European Central Bank (ECB) President Christine Lagarde told EU leaders the eurozone banking sector was “resilient” and “strong,” adding that the central bank was “fully equipped to face the financial system of the country.” Eurozone to provide liquidity when needed”. But others continued to fear that the banking crisis was not over yet.
Neil Wilson, Chief Market Analyst at Markets.com said: “Deutsche is not unlike Credit Suisse – years of pain and restructuring. We always joked that Credit Suisse was the new German. Is the German the new Credit Suisse? In the end, it all comes down to the market monster – it’s hungry and looking for its next victim.
“Until we stop asking who’s next, it won’t stop.”
Others have speculated that the turmoil in the banking sector will force central banks to pause rate hikes. But many, including the ECB, US Federal Reserve and Bank of England, have pushed rate hikes so far.
“The nagging question among market participants is still whether the turmoil in the banking sector is over or whether there will be further contagion,” said Mobeen Tahir, director of macroeconomic research at WisdomTree Europe.
“It is now also evident from central banks that volatility will not severely limit their monetary policy actions – this is causing markets to tremble because it could exacerbate or expose new vulnerabilities in the banking sector.”
Britain wants to avoid a recession
Britain appears to be avoiding recession as shoppers exit and business rediscovers its mojo.
In an upbeat report, the Office for National Statistics said retail sales rose 1.2 percent last month, bringing them back to pre-pandemic levels.
In a further push, financial information provider S&P Global said its survey of how UK businesses have fared this month suggests the economy grew 0.2 percent in the first quarter of the year.
And research group GfK said its consumer confidence index rose to its highest level since March last year. The reports suggest that the economy will avoid a recession despite forecasts to the contrary.
However, there are fears that a meltdown in the global banking system could hamper the recovery. Despite the turmoil, Bank of England Governor Andrew Bailey said Britain had a good chance of avoiding a recession.
“The prospects for economic growth are now better, significantly better,” he said.
Four months ago, he warned that the UK was facing a two-year downturn, contracting for eight consecutive quarters through mid-2024.
In yesterday’s report, the ONS said shoppers have restricted eating out and takeaway over the last month, instead buying groceries from supermarkets and second-hand discount stores.
The subsequent 1.2 percent increase in retail sales followed a 0.9 percent increase in January.
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