- Natalie Sherman and Simon Jack
- BBC News
Banking stocks fell sharply across Europe as concerns about the sector’s finances returned.
Share prices in Germany’s Deutsche Bank fell 14 percent on a point on Friday, while other lenders saw big losses.
The collapse of two U.S. banks and the rapid takeover of rival UBS by Swiss conglomerate Credit Suisse worried investors.
London, German and French stock markets all fell.
The performance of the three major U.S. stock markets fell in early trade, and the fall was partly due to share prices of financial firms including Morgan Stanley, JPMorgan Chase and Goldman Sachs.
In Europe, the list of banks that saw significant declines in their share prices included German Commerzbank and French Société Générale, whose share prices fell by around six percent. In the United Kingdom, Standard Chartered was the biggest loser, with its share price down more than 6 percent.
Ross Molt, chief investment officer at AG Bell, told the BBC that the fall in Deutsche Bank’s share price and the sharp rise in the cost of insuring against bank defaults “suggest a broader loss of confidence in the banking sector.”
“There is a growing fear that central banks may overshoot their interest rates and keep them too low for too long,” he said.
Central banks cut interest rates during the global financial crisis in 2008, and the coronavirus pandemic hit in 2020 as part of efforts to spur economic growth.
But over the past year, banks have hiked interest rates sharply in an attempt to curb high interest rates.
This increase in interest rates affected the value of investments in which banks held part of their money and contributed to bank failures in the United States.
Share prices fell across the banking sector, with major investors warning that the declines were only symptoms of deeper problems in the banking system, as other effects of the crisis had yet to emerge.
Molt said higher interest rates raise the possibility of a recession, and if that happens, “banks will generally find it harder to keep operating.”
Central banks and governments are trying to allay market fears.
German Chancellor Olaf Scholes defended Deutsche Bank at a press conference on Friday, noting that the bank had “completely restructured and modernized its business model” and was “very profitable”. Deutsche Bank shares recovered some losses in afternoon trade.
Bank of England Governor Andrew Bailey told the BBC: “England’s banking system is very safe.”
But conflicting messages from US officials about whether they are willing to guarantee all deposits in banks have led to confusion. Hopes of a return to banking sector calm seem to have been premature.
The central bank said last week that the use of the emergency lending program for banks, set up this month, has increased.
Bloomberg News also reported that the U.S. Department of Justice is investigating whether UBS and Credit Suisse helped Russian oligarchs evade sanctions.
Joachim Nagel, president of the German Bundesbank, said central banks should continue to raise interest rates because of still high inflation.
Nagel declined to comment on Deutsche Bank, but said, “Market turmoil is expected after the failure of Silicon Valley Bank and Signature Bank in the US and the failed UBS takeover of Credit Suisse.”
“In the weeks following such important events, the road is often difficult,” he added.
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