Reuters
- European bank shares saw some of their biggest losses in years on Monday, after the publication of a bombshell report showing a number of big names in the region had handled up to $2 trillion in dirty money.
- Shares in Deutsche Bank, Germany’s largest, fell more than 8%, and UK-Hong Kong-listed HSBC fell to a near 25-year low.
- But analysts told Business Insider the report was only a small contributor to the sell-off.
- Other reasons include: expectations of no further stimulus, speculation of negative interest rates, rising COVID-19 cases and underperformance of European banks.
- Visit Business Insider’s homepage for more stories.
Shares in some of Europe’s biggest banks have given up almost the gains achieved since the depths of the coronavirus crisis in March this week, with the likes of HSBC plummeting to its lowest level in almost 25 years on Monday, after thousands of leaked documents showed several major institutions handled trillions in dirty money over decades.
The documents were part of a collection of files belonging to the Financial Crimes Enforcement Network, and were published on Sunday by BuzzFeed News and the International Consortium of Investigative Journalists.
The so-called “FinCEN files” showed a number of large banks, including HSBC, Deutsche Bank, Barclays, Standard Chartered and US rivals, such as JPMorgan, helped move up to $2 trillion in suspicious funds over twenty years.
The EuroStoxx 600 Banking Index closed more than 4% lower on Monday, one of its largest one-day falls in months. The index was last up 1.4% on the day, as banking shares staged a minor recovery.
HSBC’s stock price fell 5% to a near 25-year low in Hong Kong on Monday. It was last up around 1.7% in afternoon trading in London, but still near its lowest since March this year. The likes of Deutsche Bank lost 9% on Monday, recovering by around 1.7% on Tuesday, while Barclays was up nearly 2%, following Monday’s 5.4% drop.
The European banking index has lost more than 40% in value so far this year. And analysts told Business Insider the leaked files were only a small part of this week's sell-off.
Here are the other factors that played part:
Negative Interest Rates
Speculation of negative interest rates, a mechanism usually deployed as a last resort by central banks, played a part.
Naeem Aslam, chief market analyst at Avatrade, said: "If we have a no deal Brexit, negative interest rates may come into play."
Bank of England governor Andrew Bailey said Tuesday that the UK was merely preparing for negative rates, but unlikely to employ them in the near term. But markets have still been rattled according to analysts, especially since the BoE brought them back into consideration last week.
The European Central Bank introduced negative rates in 2014 when it lowered its deposit rate to -0.1%.
Michael Hewson, chief market analyst at CMC Markets, said: "You've got ECB looking towards trying to provide more easing later in the year and you got the Bank of England talking at least about negative rates."
Negative interest rates often harm banks' profitability and put pressure on their margins.
No more stimulus
Hewson said bank stocks had also weakened because of a lack of signs of further stimulus from central banks.
The Federal Reserve last week said it would keep interest rates on hold until at least 2023, but gave no indication that any stimulus measures will be forthcoming. Democrats and Republicans have been in a stalemate since July, over the size of a next fiscal stimulus plan.
Hewson said: "Banks are in a difficult situation simply because of the fact that they're on the front line of the coronavirus pandemic."
The European Central Bank and the Bank of England made no major changes to their respective bond-buying programs and neither did the Bank of Japan at its most recent policy meeting.
Rising COVID-19 Cases
Hewson said the FinCEN papers were only "one third of the reason for the sell-off."
"Concerns about new lockdown restrictions on economic growth and unemployment [that may crimp] banks ability to make profits in the next 12 months," were also behind the decline, he added.
Governments across Europe are facing a resurgence of COVID-19 cases prompting jitters among investors, with the UK, Spain and France among the worst affected so far.
British prime minister Boris Johnson announced new restrictions to stem the spread of the virus on Tuesday that will stay in place for up to six months. France and Spain have seen cases in counts of up to 10,000 per day as a second wave of infections engulfs the region.
Chris Beauchamp, chief market analyst at IG, said the papers may make people "cautious" about buying bank stocks as there could be more "stories coming out of the woodwork."
But Aslam said he bought HSBC shares himself on Monday after the sell-off and there could be buying interest in buying European bank stocks which have underperformed in recent months.
Beauchamp said HSBC's sell-off was more driven on reports by Chinese state media on Monday that the lender may be included on a list of companies that may face restrictions on doing business in China, than by its name featuring in the FinCEN files.