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European bank stocks sell off sharply after steep falls in US

The $52.4bn sell-off in US bank shares spread to Europe on Friday, with Deutsche Bank stock falling 8 per cent and Société Générale and HSBC both dropping 5 per cent.

Investors dumped shares in the biggest US banks on Thursday on the back of difficulties at Silicon Valley Bank, a small, technology-focused lender that revealed a $1.8bn loss on the sale of a portfolio of securities.

SVB, which fell 60 per cent on Thursday, dropped another 65 per cent in pre-market activity on Friday before its trading was halted.

JPMorgan Chase, Bank of America, Citigroup and Wells Fargo were all hit by sell-offs, which analysts attributed to investors’ fears over the value of banks’ bond portfolios and falling deposits.

The Stoxx Europe 600 Banks index fell as much as 4.5 per cent on Friday, hitting its lowest point for more than a month, with Credit Suisse shares reaching a fresh inter-day low of SFr2.50, having dropped 3 per cent. Santander and ING were both down 4.4 per cent.

The broader Stoxx 600 index was down 1.22 per cent while the bank-heavy FTSE 100 slipped 1.64 per cent.

Banks have been one of the strongest-performing sectors in Europe, with shares up 20 per cent over the past six months. Lenders have reaped the rewards from rising interest rates, as their profits increase from the difference between what they pay out in deposit rates and what they earn from lending.

Analysts and investors said they did not expect the share drops on Friday to herald a broader correction across European banks.

Gary Kirk, a portfolio manager at TwentyFour, said the problems at SVB were “idiosyncratic” and European banks were more insulated against losses on their bond portfolios.

“We expect some weakness in European bank stocks today, with some price declines in the bonds (particularly AT1s) but we expect this to be shortlived as investors begin to appreciate that with higher rates the real benefit is stronger net interest margins actually strengthening the balance sheet,” he added.

Robert Alster, chief investment officer at Close Brothers Asset Management, described the situation as “a storm in a teacup” and said a direct read across from SVB to large UK and European banks was “unwarranted”.

But Alster said the fact that short-term interest rates were higher than long-term interest rates would “put pressure on margins” at big banks and “higher interest rates tend to lead to tougher lending standards which can slow down the economy”.

Analysts at Barclays said that while growing concerns about credit may weigh on the banking sector, lenders were resilient to falling deposits.

“We see room for further earnings upgrades due to rising rates, while strong capital positions, high provisions and reduced leverage put the sector in a good position to handle credit risk,” they wrote.

Patrick Spencer, vice-chair of equities at Baird, said the problems at SVB were very “company-specific” and that there was little to suggest other banks in the US or Europe were vulnerable.

“The Nasdaq could get hit because the deposits that were in SVB were from the tech sector. But futures are down only 0.1 per cent so the market is not calling for panic,” he said.

“As money gets more expensive, we get more defaults, especially in tech and crypto. It’s a classic cycle.

“The bottom line for us is that the valuations [across the bank stocks more generally] are too compelling to ignore. We have taken advantage of this panic-induced selling.”

Davide Serra, founder and chief executive of investment firm Algebris Investments, said European banks were “super safe” and that he had been using the sell-off as an opportunity to buy into the sector in both Europe and the US.