The banking sector remained under pressure on Friday, sending global markets reeling despite assurances from several politicians about the stability of the financial system.
Wall Street traded lower, with the Dow Jones down 0.77% by early afternoon, the Nasdaq down 0.88% and the broader S&P 500 index down 0.75%.
In Europe, the places fell more sharply: Paris and Frankfurt returned 2.02%, London 1.64% and Milan 1.91%.
For its part, the banking sector of the broader Stoxx Europe 600 Index fell about 4% after the cost of CDS insurance for several European banks, led by Deutsche Bank, rose sharply.
The statements made by Christine Lagarde, President of the European Central Bank, reaffirming the resilience of the banking system, which “has sound capital and liquidity positions”, and the reassuring statements by Olaf Scholz or Emmanuel Macron have not had a limited effect since the insolvency of the American Bank SVB and the takeover of Credit Suisse by UBS in feverish markets.
“The eurozone is the zone where the banks are the most solid,” affirmed the French president, while the German chancellor said there was “no reason to worry” for Deutsche Bank.
The first German bank was one of the hardest hit banks on the stock market with a minus of 11.03%, after having previously lost more than 13%. Commerzbank lost 5.62% in Frankfurt.
In Paris, Societe Generale’s stock posted the biggest drop in the CAC 40 index, down 6.57%, while BNP Paribas also lost 5.74%. In London, Barclays lost 5.31% and HSBC 3.14%. Banco Sabadell fell 4.51% in Madrid, ING 4.21% in Amsterdam and Nordea 7.86% in Copenhagen.
In Zurich, Credit Suisse fell 6.49% and UBS 5.70%, gaining some color. According to Bloomberg, these banks are among those suspected by American justice of helping Russian oligarchs evade Western sanctions. Contacted by AFP, Credit Suisse declined to comment on the information and UBS did not respond.
The sector was also neglected in New York, but to a lesser extent: JP Morgan Chase fell 1.88%, Morgan Stanley 4.02%, Goldman Sachs 2.11% and Bank of America 1.58%. The regional bank Erste Republik, which has been under particular pressure since the insolvency of the SVB, lost 2.87%.
US Treasury Secretary Janet Yellen on Friday will bring together the country’s financial regulators, including Federal Reserve (Fed) Chair Jerome Powell.
“Fear of contagion” in the banking sector “hasn’t gone away yet,” notes Neil Wilson, an analyst at Finalto, who pointed to Friday’s sharp drop in European bank stocks weighing on “overall sentiment” in the market.
“As I have said several times over the past two weeks, the crisis will only end when investors stop wondering who will be next,” the expert notes. “And it looks like we’re not there yet.”
As a sign of investor nervousness, European government bonds, considered low-risk, were highly valued. The interest rate on 10-year German debt, which varies inversely with the bond’s price, fell to 2.11% around 15:00 GMT from 2.19% at the close on Thursday.
Safe havens such as the dollar, yen and gold were also in demand. On the other hand, the euro fell 0.75% against the dollar to $1.075 per euro.
“It’s clear that after a brief breather earlier in the week, we’re far from over the hump,” City Index analyst Fiona Cincotta warned in an interview with AFP. “As interest rates continue to rise, fears about the banking sector are likely to increase.”
In fact, the central banks of the United States, England, Switzerland and Norway have announced a further increase in their key interest rates, their main tool in the fight against inflation. This “increases the pressure” on the banks, according to CMC Markets analyst Jochen Stanzl.
Oil prices are also falling, which is often a sign that investors fear an economic recession. A barrel of North Sea Brent for delivery in May fell 2.18% to $74.25, while a barrel of US WTI for the same maturity fell 2.27% to $68.37.