European banking stocks have been shaken once again by concerns of potential contagion amid revelations of investigations and rising insurance costs against debt defaults.
Deutsche Bank shares plummeted by over 12% as the cost of insuring against debt defaults surged, while UBS’s share price fell more than 4% following news of an investigation by the US Department of Justice.
The US probe centers on allegations that UBS staff helped Russian oligarchs evade sanctions, adding to the already strained sentiment in the European banking sector.
Concerns regarding Deutsche Bank’s stability have also resurfaced, despite the German lender reportedly having capital reserves well above regulatory requirements.
These latest issues come amid apprehensions about the implications of recent rate hikes on the banking system.
There are fears that another round of rate increases could exacerbate the situation for smaller banks, particularly those with large bond holdings that have lost value due to tightened monetary conditions.
Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, commented on the situation: “Waves of bad news keep hitting the banking sector and the tide doesn’t look like it’s set to turn any time soon.”
Despite the ongoing challenges, the European Central Bank (ECB) remains prepared to deploy fresh tools to bolster liquidity if necessary. ECB President Christine Lagarde has reiterated that the banking sector continues to be resilient, with strong capital positions.
Similarly, the Bank of England has emphasised that there is no systemic risk, and the UK banking system remains secure.