European bank shares fall sharply as investor jitters resurface

European banking stocks tumbled on Wednesday, led by a dive in Credit Suisse shares after the Swiss lender’s largest shareholder said it would not provide it with any more capital.

In Europe the Euro Stoxx Bank index dropped 6.4 per cent, as Credit Suisse shares lost more than a fifth in value. Société Générale lost 9.6 per cent, Bank of Ireland shed 9.2 per cent and BNP Paribas fell 8.8 per cent.

Credit Suisse shares sank to a fresh low of SFr1.99 on Wednesday after the chair of the Saudi National Bank, which bought a 10 per cent stake in Credit Suisse last year, ruled out providing the Swiss lender with any more financial assistance.

The spreads on the bank’s five-year credit default swaps — which indicate investor assessment of the likelihood of a debt default — widened to 565 basis points on Wednesday, from 350bp at the start of the month.

The sell-off in bank shares piled renewed pressure on a sector already reeling from the fallout of the collapse of Silicon Valley Bank, and dragged down broader equity markets in Europe.

The benchmark Stoxx 600 was down 1.8 per cent, with the UK’s bank-heavy FTSE 100 down 1.8 per cent and France’s CAC 40 off 2.5 per cent as investor jitters extended for a third day.

Neil Birrell, chief investment officer at Premier Miton, said that investors already on edge following the collapse of SVB were right to worry about Credit Suisse.

“These aren’t all isolated cases, the fear of contagion is clear,” he said. “Credit Suisse has been in a somewhat shaky state for some time, it’s not surprising you’ve got people running for the hills.”

The yield on the two-year US Treasury note, which closely tracks interest rate expectations and moves inversely to price, gave up its early gains to fall 0.1 percentage points to 4.1 per cent. The yield on the 10-year note, which underpins global borrowing costs, also reversed direction to fall 0.08 percentage points to 3.55 per cent.

Yields on 10-year German Bunds slid 0.2 percentage points, to 2.27 per cent. The yield on the two-year note fell 0.3 percentage points to 2.61 per cent.

Earlier in the day, equities in Asia had rebounded as traders bought financial stocks following heavy selling at the start of the week.

Japan’s Topix added 0.7 per cent, South Korea’s Kospi added 1.2 per cent and Australia’s S&P/ASX 200 gained 0.9 per cent. Hong Kong’s Hang Seng index rose 1.5 per cent. The Topix Banks index in Japan gained 3.3 per cent after suffering its steepest decline in three years on Tuesday.

US stocks rebounded on Tuesday as fears of contagion across the banking sector from the failure of SVB eased. New data also showed that inflation had slowed but was still high at 6 per cent.

Futures contracts tracking the benchmark S&P 500 were flat, while those for the tech-heavy Nasdaq Composite were up 0.2 per cent. The indices closed on Tuesday up 1.6 per cent and 2.1 per cent respectively.

The stubbornly high inflation data comes at a tricky moment for the US Federal Reserve as it contends with the demise of three banks and broader concerns about financial stability, increasing speculation that it will have to pause the ascent of its interest rate increases earlier than expected.

The European Central Bank meets on Thursday to decide its next interest rate move. Investors are pricing in an 82 per cent chance of a 50 basis point rise, on the assumption that much of the chaos inflicted by SVB has not spread to markets across the Atlantic.

In currency markets, the dollar index, which measures the greenback against six peer currencies, rose 0.1 per cent. Sterling was flat against the dollar, ahead of UK chancellor Jeremy Hunt’s spring Budget.

Oil prices gave up early gains, with both Brent crude and West Texas Intermediate, the US benchmark, trading 0.1 per cent lower.