By Chris Dorrell
European Bank stocks continued to recover today as US Treasury Secretary Janet Yellen is set to signal further support for regional US lenders.
Europe’s largest banks were all firmly in the green around midday. BNP Paribas rose 3.9 per cent, Deutsche Bank was up 5.2 per cent, while UniCredit and Santander climbed 6.3 per cent and 5.0 per cent respectively. The European wide Stoxx 600 banking index was up 3.7 per cent.
UBS climbed 7.3 per cent, despite its outlook being downgraded to negative by both S&P and Moody’s over the last couple of days.
“UBS’s takeover of Credit Suisse has blunted the risk of a Lehman-style event engulfing European banks, and though contagion fears continue to drag on confidence, the focus is gradually returning to fundamentals, which we think are strong across the sector,” Philip Richards, a senior analyst at Bloomberg Intelligence, said.
“Our analysis shows that while Credit Suisse met capital and liquidity needs, it has been an outlier lagging peers on profitability, deposit outflows and risk management for more than two years. That should limit any contagion effect to other European banks,” he said.
The recovery in European bank stocks comes as US Treasury Secretary Janet Yellen is expected to expand guarantees for deposits amidst concerns that panicked depositors are withdrawing funds from US regional banks.
“The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system,” Yellen is expected to say at a speech to the American Bankers Association today, according to a report by the Financial Times.
Following the collapse of Silicon Valley Bank and Signature Bank, First Republic has been teetering on the edge of collapse, facing an exodus of deposits. First Republic has a high proportion of uninsured deposits and is facing big unrealised losses on its portfolio of low-yielding mortgage backed securities.
Its share price dropped nearly 50 per cent yesterday, but it has jumped more than 28 per cent in pre-open trading.
Other US regional lenders Western Alliance Bancorp and PacWest Bancorp were both up 7.2 per cent and 7.5 per cent respectively in pre-open trading.
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