European banks battered as Credit Suisse drops over 20%

European shares fell on Wednesday as bank stocks resumed their selloff, after a short-lived bounce in the previous session, with Credit Suisse plunging to a fresh record low.

The pan-European STOXX 600 index fell 2.5 per cent by 1118 GMT, languishing at 10-week lows, as was the banks sector index after plunging nearly 6 per cent.

The bank index is set to lose more than 120 billion euros ($127.26 billion) in market value since the close of March 8.

Spain and Italy’s lender-heavy indexes fell almost 4 per cent each.

Shares of Credit Suisse fell below 2 Swiss francs ($2.18) after the lender’s biggest shareholder said it could not raise its 10 per cent stake, citing regulatory issues. The market regulator halted trading in the stock several times as volumes soared and the stock plummeted.

There was also a cooling of optimism that the US Federal Reserve will tone down its rate-hiking spree next week in the aftermath of Silicon Valley Bank’s (SVB) collapse.

“It doesn’t feel as if SVB at the moment is deflecting central banks, or at least the Fed from it’s designed to keep pressing hard against inflation,” said Russ Mould, investment director at AJ Bell.

“Some of that early-year optimism (that) we would get a cooling in inflation.. (and) that we get a pivot in rates... might not come to pass.”

All eyes will now be on the European Central Bank, which is still leaning towards a half-percentage-point rate hike on Thursday, despite turmoil in the banking sector, as they expect inflation will remain too high in coming years, a source told Reuters.

Retailers shed 5.0 per cent after shares of Zara-owner Inditex, the world’s biggest fashion retailer, fell 5.2 per cent as it flagged higher investment spending.

H&M, the world’s second-biggest fashion retailer, slid 8.1 per cent after a smaller-than-expected increase in sales over the December to February period came as the latest sign that it is struggling to compete with Inditex.

UK finance minister Jeremy Hunt will present the spring budget later in the day. London’s FTSE 100 index fell 2.3 per cent.

Prudential fell 10.3 per cent. The Asia-focused insurer reported a rise in full-year year profit, while Chief Financial Officer James Turner said it had a $1 million exposure to Silicon Valley Bank, which was ‘minimal’ against a total debt book of $23 billion.

TotalEnergies slid 4.5 per cent after some 42 per cent of operators at its French refineries and depots continued their strike for an eighth day over the government’s planned changes to its pension system.

Credit Suisse shares fell by as much as 23.8 per cent and were last down 20.2 per cent. Trading in the shares was halted a number of times by the stock exchange operator as volumes soared and the stock plummeted.

An index of European bank stocks fell in morning trading and was last down 6.1 per cent, hitting its lowest since January 3. The index has dropped 14 per cent since last Wednesday’s close, meaning a loss of over 120 billion euros ($127.25 billion) in market value since then. It is the index’s biggest week-on-week loss since Russia’s invasion of Ukraine last February.

Fears of contagion after the collapse of tech-focused lender SVB and New York-based Signature Bank last week have weighed on European bank stocks.

“Markets are wild. We move from the problems of American banks to those of European banks, first of all Credit Suisse,” said Carlo Franchini, head of institutional clients at Banca Ifigest in Milan.

“This is dragging lower the whole banking sector in Europe. The shares accelerated losses after the Saudis (commented)...I believe Credit Suisse’s crisis can be solved and the bank will not be let to go belly up,” Franchini said.

Shares in Swiss bank UBS fell 6.8 per cent. French banks BNP Paribas and Societe Generale were both down by over 11v.

Spanish bank Banco de Sabadell was last down 9 per cent and Germany’s Commerzbank fell nearly 10v, while Deutsche Bank shares were down 8.4 per cent.

“The fact remains still that European banks, and especially the bigger ones, have a much better management of their interest rate risk, which is what made the three US banks collapse, and they have liquidity,” said Jerome Legras, head of research at Axiom Alternative Investments.