Deutsche Bank, which has been battling to reassure investors on its financial health this week, was more than 6% down on Thursday while the share price of French lender Societe Generale was off more than 12% following the release of its latest results.
Advertisement
Banks and companies exposed to lower commodity prices were among the biggest losers in the City, where the FTSE 100 Index fell by 135 points, a drop of more than 2%. That’s the case of Deutsche Bank, which has seen the value of its so-called contingent convertible bonds fall sharply.
Europe’s banks have lost over a quarter of their market capitalisation this year, with the STOXX Europe 600 Banks Index down more than 28 per cent since January 1.
“There are worries about global growth, and fears of a recession are starting to emerge”.
The biggest fallers in the FTSE 100 Index were Anglo American down 11.2% or 42.1p to 333.9p, Antofagasta down 9.3% or 42.5p to 410.9p, Glencore down 8.1% or 8.2p to 94.6p, and BHP Billiton down 5.8% or 41.4p to 666.1p.
Analysts say that should the European Central Bank cut interest rates further into negative territory next month.
Britain’s top share index climbed higher on Wednesday, with Tesco gaining after an industry sales report and banks bouncing back on bargain-hunting after three straight sessions of losses. Spot gold was up 2.5% to $1,226.43 an ounce. The Japanese currency, gained 0.5 percent against the dollar but was below a 15-month high hit on Tuesday.
Eurozone finance ministers tried to soothe concerns with Finland’s Alex Stubb saying “we should be pretty relaxed” about the volatility in bank shares.
It was followed in the red by France’s CAC40 and Germany’s DAX index which both declined 4.1pc and 2.2pc respectively.
A warning about the economy from the US Federal Reserve’s Janet Yellen sparked the rout, but Hong Kong dropping 4% and renewed fears over European banks fuelled the unease. But a drop by 10.8 percent in first few days of February has set it on course for its biggest monthly fall since the financial crisis of 2008.
Markets remain cautious over the outlook for banking sector profitability, according to CMC Markets analyst Michael Hewson. “Since the turn of the year expectations of United States interest rate changes have gone from four increases to the current 70% probability of no changes in 2016”. Negative rates have hit banks ability to earn margins on interest rates and are one of several issues facing the sector. “We think it’s because the market is dominated by people who do not invest on fundamental factors”.
The yen and Swiss franc, often sought in times of financial market turmoil, have also received strong boosts this week.
Advertisement
“What is really happening is that the markets have stopped believing central banks can generate inflation”.
