European Markets Closed at One-year Lows On Rising Bank Sector Worries

Bridgette Randall
15 Mar, 2023
New York City

European markets sank after banks plunged on the interest rate risks worries.

The latest market selloff was sparked by a 25% plunge in Credit Suisse after its largest shareholder declined to inject more liquidity into the troubled bank. 

A day ago the Swiss-bank confirmed "material weakness" in its financial reporting system and the bank is still struggling to complete its annual report.  

Several banks in France and Italy were halted after the morning selloff knocked many banks down as much as 12%. 

Deutsche Bank, UniCredit, BNP Paribas, Societe Generale and Banca Monte dei Paschi dropped between 8% and 11%. 

Silicon Valley Bank, once the 16th largest bank in the U.S. with $175 billion in deposits, would have passed the U.S. Federal Reserve's stress test determining financial fitness for the largest banks. 

“Our capital, our liquidity basis is very, very strong” and CEO Ulrich Koerner added in an interview with Reuters that  “we fulfill and overshoot basically all regulatory requirements.”

Not knowing what is ailing banks and what risks are lurking in balance sheets is adding to market anxieties.  

Woes of Credit Suisse are not new but the rising stress in bank stocks after the collapse of the Silicon Valley Bank and higher-rates-for-longer scenario is adding to the market anxieties. 

Markets were not convinced and Credit Suisse plunged as much as 30% forcing a statement from the Swiss National Bank. 

The central bank said in a statement that it is prepared to inject liquidity if needed because the "systematically important bank" meets the capital and other lending requirements. 

The central bank also added that the failure of two U.S. banks does not pose "direct risk of contagion" to Swiss banks.  

The move calmed broader financial markets and bank stocks pared losses across Europe. 

 

European Indexes Closed at One-year Lows

Stock market indexes dropped the most in a year as banking sector worries drove the market sentiment. After two hours of trading in Paris and Frankfurt benchmark indexes dropped to the low and struggled to rebound. 

The European Central Bank is set to lift its lending rate by 25 basis points after the policy meeting on Thursday. 

Higher rates are going to increase losses in government securities held by banks, stoking fears of the need to raise capital to bolster balance sheets. 

The DAX index dropped 3.3% to 14,735.26, the CAC-40 index declined 3.6% to 6,885.71 and the FTSE 100 index fell 3.8% to 7,344.45. 

 

European Government Bond Yields Turned Lower

European government bonds inched higher after investors sought safety of sovereign bonds on the rising risks of the banking crisis. 

The yield on 10-year German Bunds declined to 2.2%, French bonds eased to 2.73%, the UK gilts to 3.33% and Italian bonds to 4.13%. 

The euro declined 1.9% against the dollar, its worst one-day decline since March 19, 2020 when the currency fell 2.04%. 

The euro edged lower to $1.0508, the British pound fell to $1.207 and the Swiss franc eased to 92.80 cents. 

 

Crude Oil Traded at New 15-month Lows

Crude oil traded at a new 15-month low on rising stress in the banking sector and worries spilled over to Europe. 

Prices fell despite OPEC and the International Energy Agency revised higher their estimates of demand growth from China. 

Saudi Arabia energy minister Prince Abdulaziz bin Salman said OPEC would stick to its production cuts agreed in October till the yearend. 

Brent crude oil prices declined 4.4% to $74.11 a barrel and the Dutch TTF natural gas spot price fell 3% to Є42.90 per MWh. 

 

Europe Movers 

Ferrexpo Plc declined 7% to 122.0 pence after the Swiss commodities trading and mining company reported a decline in profit in 2022. 

IG Group Holdings plc dropped 9.9% to 695.50 pence after the online trading company reported third quarter revenue fell 7% on lower market volatility. 

Industria de Diseno Textil SA, parent of Zara, declined 5.1% to €27.68 despite the fashion and apparel retailer reporting record net income in 2022. 

Burberry Group Plc declined 3.7% to 2,245.46 and the luxury fashion group appointed Kate Ferry as chief financial officer, replacing Julie Brown who had announced her decision to step down in September 2022. 

Kate Ferry currently serves as chief financial officer of McLaren Group. 

Lanxess AG plunged 11.3% to €34.85 after the German specialty chemical company swung to a loss in fourth quarter €21 million compared to a profit of €29 million a year ago. 

 E.ON increased 0.5% to €10.38 after the Germany-based utility company said sales and adjusted profit increased in full-year 2022. 

BMW AG declined 1% to €94.69 and the vehicle maker estimated operating earnings margin between 8% and 10% in 2023. 

The company also confirmed its 2022 results and said vehicle sales declined 4.8% to 2.4 million from 2.5 million a year ago.