Global bank shares sink as contagion fears return

Global bank shares fell on Friday, dragging down global stock markets as fears about the health of the banking system resurfaced following a raft of interest rate hikes.

Markets had rallied earlier this week after financial authorities took steps aimed at preventing contagion from the collapse of the US regional lenders earlier this month.

The selloff follows decisions by central banks in the United States, eurozone, Britain and Switzerland to hike interest rates even though the monetary tightening is blamed for the troubles in the commercial banking sector.

Fears of contagion led to the take over of embattled Swiss bank Credit Suisse by domestic rival UBS on Sunday.

The focus has now turned to another major European lender, Deutsche Bank, whose shares nosedived by more than 13 percent on Friday as the cost of insuring against default in its debt spiked.

European officials sought to ease concerns about the banks.

German Chancellor Olaf Scholz said after an EU summit that “there is no reason to be concerned” about Deutsche Bank as the lender is “very profitable”.

European Central Bank President Christine Lagarde told EU leaders that the single currency area’s banking sector is “resilient because it has strong capital and liquidity positions”, according to an EU official.

But City Index analyst Fiona Cincotta told AFP that the selloff in bank shares has highlighted “just how fragile sentiment is towards the sector”.

“As central banks continued hiking rates this week the outlook is looking increasingly shaky,” she told AFP, adding that “Deutsche Bank has come under the spotlight as a possible target for contagion risk.”

Wall Street retreated at the open while European markets fell in afternoon deals after Asian indices closed in the red.

Shares in US financial giants JPMorgan Chase, Bank of America and Citigroup were down more than one percent.

In Paris, Societe Generale and BNP Paribas shares shed around six percent in value.

UK bank Barclays was also down around six percent in London while NatWest fell almost four percent and Standard Chartered tumbled more than four percent.

Investor panic also sent oil prices sliding more than two percent on weaker demand fears due to concerns about a possible recession.

Share prices in energy majors including BP, Shell and TotalEnergies also tanked.

Friday’s fresh market woes overshadowed news of an upbeat survey showing eurozone economic growth hit a 10-month high in March.

Global markets were slammed earlier this month by the collapse of three regional US lenders, notably Silicon Valley Bank, which had lost $1.8 billion in the sale of a bond portfolio whose value dropped due to the higher interest rates.

US authorities moved to protect bank deposits but Treasury Secretary Janet Yellen revived concerns on Wednesday when she said authorities were not looking at a blanket increase in deposit insurance for banks.

“Contagion fears are not yet going away,” said Finalto analyst Neil Wilson.

“It only stops once people stop asking who’s next. And it does not seem like we are at that stage yet.”

Some investors are hopeful, however, that central banks could be nearing the end of their interest rate-hiking cycle.

The turmoil has forced the Fed and others to change their monetary policy game plan to avoid further problems in the finance industry.

On Wednesday, the Fed announced a quarter-point rate hike — half what was expected before the latest upheaval — and indicated it could pause soon.

Observers said an expected tightening of credit in the finance sector — caused by wary banks lending less — would allow the Fed to step back.

New York – Dow: DOWN 0.9 percent at 31,819.65 points

London – FTSE 100: DOWN 1.5 percent at 7,387.35

Frankfurt – DAX: DOWN 2.1 percent at 14,898.13

Paris – CAC 40: DOWN 2.0 percent at 6,993.39

EURO STOXX 50: DOWN 2.1 percent at 4,117.41

Tokyo – Nikkei 225: DOWN 0.1 percent at 27,385.25 (close)

Hong Kong – Hang Seng Index: DOWN 0.7 percent at 19,915.68 (close)

Shanghai – Composite: DOWN 0.6 percent at 3,265.65 (close)

Euro/dollar: DOWN at $1.0746 from $1.0840 on Thursday

Pound/dollar: DOWN at $1.2198 from $1.2286

Euro/pound: DOWN at 88.09 pence from 88.20 pence

Dollar/yen: DOWN at 130.37 yen from 130.86 yen

Brent North Sea crude: DOWN 2.3 percent at $73.74 per barrel

West Texas Intermediate: DOWN 2.4 percent at $68.26 per barrel