25th March 2023 – (London) Europe’s banking stocks have fallen due to lingering worries that recent crises at some banks could spread to the wider sector. The Stoxx Europe 600 Banks index, which tracks 42 large EU and UK banks, closed 3.8% lower, while London’s bank-heavy FTSE 100 index closed down 1.3%. Deutsche Bank’s shares fell as much as 14.5% before closing 8.6% lower. UBS and Credit Suisse were also down 3.6% and 5.2%, respectively. This comes after the cost of insuring against a possible default by Deutsche Bank on its debt soared in recent days.
Investors may have been rattled by Deutsche Bank’s announcement that it would pay back one of its bonds five years before its maturity date. This move is usually interpreted as a sign that a company is in good financial health and able to pay back its creditors early. But after two bank collapses in the US and an emergency takeover of Credit Suisse this month, some investors may have interpreted the announcement as a sign that Deutsche Bank is nervous about the state of the banking sector and trying to overcompensate. Deutsche Bank’s decision to pay back the bond ahead of schedule was pre-planned and not a reaction to recent market developments, according to a source familiar with the matter. The bank replaced the bond by issuing another bond of the same type in February, they added.
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. Some analysts said investors had been rattled by the two banks’ decisions, particularly the Bank of England’s, as it came after the collapse of two large US banks.
Switzerland’s UBS and Credit Suisse have suffered heavy losses following a Bloomberg report that the US Department of Justice 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. Michael Hewson, Chief Market Analyst at CMC Markets, said “the DOJ probe into UBS is certainly playing a part in the share price weakness” in European banks.