Beautiful Virgin Islands

Tuesday, Aug 25, 2026

European bank shares are being clobbered by a cocktail of unease

European bank shares are being clobbered by a cocktail of unease

Sky's Ian King explains why more European banks are coming under pressure as the sell-off of recent weeks resumes with no end in sight.
It is another "risk off" day in the jargon for stock markets in Europe.

Banking stocks, in particular, are falling out of bed.

Shares of Deutsche Bank and Commerzbank, Germany's two largest lenders, have fallen at their worst by 13% and 8% respectively while BNP Paribas and Societe Generale, the first and third-largest banks in France, have each fallen by 7% or so.

Meanwhile UBS, which of course has been cajoled by the Swiss government into a shotgun marriage with its largest rival Credit Suisse, has fallen by 7.5%.

These reverses have been echoed to a slightly lesser extent by falls in banking stocks in London. Shares of Barclays, Standard Chartered, NatWest Group, HSBC and Lloyds Banking Group are all among the biggest percentage fallers in the FTSE 100 today.

Perhaps most disquieting is the fact that, not only have some European lenders seen big declines in their share price, the cost of insuring against the likelihood of these banks defaulting has risen.

For example, the price of a five-year credit default swap (or CDS, the instrument used to buy insurance) on Deutsche Bank has shot up from 89.625 basis points two weeks ago to as much as 211.655 basis points.

That is a stupendous increase that speaks to the levels of uncertainty in markets. The price of CDSs on other European lenders have also jumped.

So what's going on?

Several things. The first thing to say is that there does not appear to be a particular single, overwhelming, catalyst for the sell-off. Rather it is a combination of factors.

One of these is the rescue of Credit Suisse which, while impressively executed by the Swiss authorities, has introduced an addition level of uncertainty for those who invest in bonds issued by banks in particular.

The rescue saw some $17bn (£14bn) worth of value in bonds known as 'AT1' bonds completely wiped out.

It has provoked fury among the holders of those bonds because, normally, shareholders rank below bondholders in the hierarchy of creditors - and, on this occasion, shareholders of Credit Suisse received at least a modest sum for their shares even as the AT1 bondholders were wiped out.

That is highly unusual and has probably made some owners of bonds issued by other lenders reappraise their appetite for risk - hence the surge in CDS prices.

Another reason is the fact that there is still a good deal of unease among investors in the mid-tier and regional lenders in the US following the collapse of Silicon Valley Bank.

Confidence in what was America's 16th largest lender unravelled when it failed to raise extra capital from shareholders and when it was forced to sell a $21bn bond portfolio in order to meet demands from depositors for their money back.

SVB crystallised a $1.8bn loss in the process, due to falls in the value of the bonds in which it had invested, raising concerns in the minds of some bank investors as to how much the worth of bond portfolios owned by other lenders might also have fallen.

Attention has focused on other mid-tier lenders, most notably First Republic, a New York-based bank which, last Friday, received some $30bn in deposits from 11 other lenders - among them giants such as JP Morgan Chase, Citigroup and Wells Fargo - in an attempt to shore up confidence.

So there is concern there - and that has, to an extent, percolated to Europe.

An additional factor is the position of some of the individual banks. Attention focused on Credit Suisse because of its recent accident-prone history and its poor financial performance.

To an extent, Deutsche Bank is coming in for similar treatment for the same reasons.

The lender is no stranger to sudden sell-offs in its share price, most notably in 2016, but in more recent times it has appeared to be back on the straight and narrow. This reflects in no small way Deutsche Bank's restructuring under Christian Sewing, its chief executive, which began in 2019.

Deutsche last month reported a net profit for 2022 of €5.7bn (£5bn), more than twice what it achieved in 2021, which represented its best outcome for 15 years. Yet Deutsche continues to be dogged by past legacy issues - the German financial regulator, BaFin, continues to be unhappy at its internal controls to identify and stop money laundering - and these may yet result in more misconduct penalties.

Legacy misconduct charges also potentially hang over UBS.

It and Credit Suisse are, reportedly, under investigation by the US Department of Justice over allegations that some employees may have helped Russian oligarchs evade sanctions following Russia's invasion of Ukraine.

So, no one overriding factor, but lots of individual ones that, put together, create a cocktail of unease.

All of that, ahead of the weekend and as the end of the first quarter approaches, explains why some investors are squaring their books and avoiding excess exposure to banking stocks and bonds.

The reasons why some investors feel uneasy about banks were explained succinctly this week in an article for the Financial Times, entitled "Why I never invest in bank shares", by the influential investor Terry Smith.

In the piece, he highlighted the sector's poor returns to investors, the high levels of leverage in the sector, the disruption to traditional lenders by fintech firms and, above all, the systemic risks that still lurk in the banking sector.

Mr Smith wrote: "Even if the bank you are invested in is well run, it can still be damaged or destroyed by a general panic in the sector... banks can be brought down by the actions of their peers.

"Look at what happened to some US regional banks in the wake of the SVB disaster. Lord Mervyn King, the former Bank of England governor, encapsulated this when he observed that it made no sense to start a run on a bank, but once one has started you should join in."

His words sum up perfectly why, when sell-offs in banking shares occur, the selling can be sometimes indiscriminate.

When a butterfly flaps its wings in Zurich, it can lead to share price falls in New York, London and Frankfurt.
Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
Prime Minister Andy Burnham to Give Ukraine Classified Storm Shadow Blueprints for Domestic Missile Production
UK Graduate Job Vacancies Plunge 45% to Lowest Levels on Record
Iranian Hackers Shut Down British Power Plant for Four Days in Landmark Cyber Attack
Novak Djokovic Reveals Relentless Self-Doubt and Rejects Retirement in New Documentary
Trump Imposes 50% Tariffs on Canadian Goods After Bilateral Trade Talks Collapse
Australia Combines Indigenous Fire Knowledge With Satellite Tech to Combat Catastrophic Wildfires
Father and Son Jailed in Scotland Over £900,000 Airport Cannabis Smuggling Operation
UK Fraud Reports Surge Sevenfold as Criminals Exploit QR Codes in Parking Meters and Phishing Emails
Brighton Thrash Aston Villa in Four-Goal Opening Half as Manchester City Trail Bournemouth
Erin Patterson Appeals Triple Murder Convictions After Hotel Mixed Sequestered Jury With Prosecution
The rise and fall of Hui Ka Yan, China’s richest man
Woke: Britain Considers Plain Packaging for Cigars as Specialist Shops Warn of Industry Collapse
Britain's Public-Service Productivity Remains Below 2019 as £80 Billion Output Gap Fuels WFH Debate
Mandelson Epstein Case in Jeopardy as U.S. Files Stay Out of Reach
Prince Harry and Six Others Ordered to Pay £9.5 Million After High Court Defeat
Petrol Bombs Set Luxury Cars Alight Outside Birmingham Wedding as Police Hunt Three Men
Bitcoin Surges Toward $80,000 as Short Squeeze and ETF Inflows Ignite Crypto Rally
Twenty-Nine US States Take Meta to Trial Over Alleged Child Addiction on Instagram and Facebook
Former Scottish National Party Executive Peter Murrell Jailed for Five Years Over £400,000 Embezzlement
Moderna and Merck's Personalized Cancer Vaccine Succeeds in Historic Late-Stage Melanoma Trial
Prince Harry and Meghan to Move Back to Britain With Their Children
England and Wales Have Fewer Than 1,800 Prison Places Left for Men
Suspected People Smuggler Arrested After Investigation Identified Him
Children's Doctors Warn That Vaping Can Lead Young People to Smoking
Hundreds of Thousands of Students Receive GCSE and Vocational Results Across England, Wales and Northern Ireland
Here Is What Can Never Happen in Your Country: Taiwan Is Giving Money to All Its People Because It Collected Too Much Tax
UK Inflation Rises to 2.9% as Energy Bills Jump
UK Issues New Conduct Guide for Asylum Seekers on Consent and Respect
A Sleepless Night on Wall Street: Nasdaq to Begin Nearly Round-the-Clock Trading
"The First in the World": 69-Year-Old Protested Artificial Intelligence—and Went to Jail
Ukraine's Ousted Defence Minister Calls for Wartime Presidential Election
China’s Lifelike AI Humans Move From Livestreams Into Real-World Service Roles
Sarah Ferguson Reportedly Retreats to Late Ex-Boyfriend's Swiss Chalet
Cristiano Ronaldo and Georgina Rodríguez Sign Prenup Protecting Their Separate Fortunes
Thieves Steal Antonello da Messina Renaissance Masterpieces From Sicilian Museum
Better.com Founder Who Fired 900 Employees on Zoom Is Ousted as CEO
Italian Speed Camera Issues Nearly 32,000 Fines in 10 Weeks, Worth More Than €3 Million
AI Manager at San Francisco Store Recommends Firing Human Employee
Google Launches Pixel 11 With Gemini AI at the Center of Its Hardware Strategy
Reform UK Unveils Plan to Cut Welfare Spending by More Than £50 Billion a Year
Prime Minister Andy Burnham Praised Extinction Rebellion for Doing a 'Great Service'
UK Wildfire Phone Alert Triggers Backlash as Users Switch Off Emergency Warnings
Heathrow Roads Reopen After Burst Water Main Floods Access to Terminals 2 and 3
Former NBA Players Enes Kanter Freedom and Royce White Say They Will Enter 2027 WNBA Draft
Former Cambridge Professor Jason Arday Found Dead Days After Resigning Amid Plagiarism Row
US Appeals Court Rules AI Agent's Website Actions Are Legally Attributed to the User
France's Constitutional Council Blocks Social Media Ban for Children Under 15
Liechtenstein Changes Royal Succession Rules to Allow Women to Inherit the Throne
Women Allege Rape and Sexual Abuse at British Army College for Teenage Recruits
Minnesota: Two independent investigators posed as Muslims (one wearing a burqa) and showed how they could vote in elections without identification.
×