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London
CNN
—
Europe’s banking stocks tumbled Friday in a sign that investors are still nervous that the recent crises at some banks could spill over into the wider sector.
Europe’s Stoxx Europe 600 Banks index, which tracks 42 big EU and UK banks, fell 5% by the middle of the European day. The index is down 19% from its high in late February. London’s bank-heavy FTSE 100 index dropped 2%.
Shares in Germany’s Deutsche Bank
(DB) plunged 14%, while shares in UBS
(ACPTX) and Credit Suisse
(AMJL) — which are not part of the Stoxx Europe 600 Banks index — slid 6.7% and 7% respectively Friday, following falls of 4.3% and 3.6% on Thursday.
The cost of insuring against a possible default on its debt by Deutsche Bank — Germany’s biggest lender — has soared in recent days. Deutche’s credit default swaps (CDSs) skyrocketed to 203 basis points Thursday, according to data from S&P Market Intelligence. That’s the highest level since early 2019.
The bank’s five-year CDS were trading 8% higher, at 220 basis points, at 07.51 a.m. ET on Friday.
Deutsche Bank declined to comment.
“The rising price of insuring CDS senior debt is weighing on Deutsche Bank, as well as other European banks, on concerns over the impact of rising rates on the wider economy and banks’ balance sheets,” Michael Hewson, chief market analyst at CMC Markets, told CNN.
Last week, the European Central Bank stuck with its plan to hike interest rates by half a percentage point, judging that inflation posed a bigger threat to the economy than recent turmoil in the banking sector.
Then, on Thursday, the Bank of England raised its main interest rate by a quarter of a percentage point after data showed a surprise spike in inflation last month.
“Contagion fears are not yet going away,” Neil Wilson, chief markets analyst at trading platform Markets.com, said in a note Friday.
Shares of Germany’s Commerzbank
(CRZBF) and France’s Société Générale also suffered heavy losses, sinking 8% and 7% respectively by midday.
Last week, Switzerland’s biggest bank UBS bought its embattled Swiss rival for 3 billion Swiss francs ($3.25 billion) in an emergency takeover brokered by the Swiss government.
That helped restore some calm to markets rattled by the failure earlier this month of two US regional banks. But investors were on edge again Friday.
The falls in UBS and Credit Suisse come after Bloomberg reported Thursday that the US Department of Justice (DOJ) was investigating whether their staff had helped Russian oligarchs evade Western sanctions.
The DOJ had sent subpoenas to those employees before UBS took over Credit Suisse, according to the report.
Employees at some major US banks are also part of the probe, Bloomberg said.
Hewson said “the DOJ probe into UBS is certainly playing a part in the share price weakness” in European banks.
US futures were also down in premarket trade, with the Dow falling 1.1%, the S&P 500 1% and the Nasdaq Composite 0.71%.
