Business World

Monday 20 November 2017

Survival fears for eurozone send shares over the cliff

Bank stocks are hammered as US sues 17 institutions and investor concern grows over interbank lending

German Chancellor Angela Merkel. Photo: Getty Images
German Chancellor Angela Merkel. Photo: Getty Images
Peter Flanagan

Peter Flanagan

STOCKS across Europe plunged yesterday, as renewed fears about the European debt crisis returned to haunt trading floors. Irish investors were among those suffering huge losses, with CRH among those sliding.

Bank shares in particular were badly hit a day after German Chancellor Angela Merkel's party lost a local election in her own state, signalling fading support for the EU/IMF bailouts of Ireland, Greece and Portugal.

Royal Bank of Scotland (RBS) led European banks lower, dropping the most in more than two years after 17 lenders were sued by the US over the sale of mortgage-backed securities and on investor concern over interbank lending.

Irish stocks were pummelled, while the yield on Spanish and Italian bonds rose again.

National benchmark indices dropped in all 18 western European markets. Germany's DAX Index tumbled 5.3pc, sending the gauge's companies to their cheapest-ever valuation as a multiple of estimated earnings. The UK's FTSE 100 Index dropped 3.6pc and France's CAC 40 Index lost 4.7pc. Dublin's ISEQ dropped 3.46pc.

"As soon as you see spreads increasing in Italy and Spain, you get the whole concern about the sustainability of the eurozone going on," said Joost van Leenders, at BNP Paribas in Amsterdam. "That is reflected in equity markets today. It's hurting sentiment, and then there's concern with the banking industry that market stress could affect lending. That drives investors away from the most risky assets."

Allied Irish Banks and Bank of Ireland, Deutsche Bank and Credit Suisse dropped more than 8pc while RBS tumbled more than 12pc.

The US government is suing 17 lenders [excluding BoI and AIB] to recoup money spent on mortgage-backed securities bought by Fannie Mae and Freddie Mac.

HSBC slid 3.8pc while Barclays lost 6.7pc and Societe Generale sank 8.6pc.

Analysts said the lawsuits were likely to hang over the banks for a prolonged period. Banks also fell as the premium they pay to borrow in dollars for three months through the swaps markets climbed to the most since December 2008, a sign that Europe's lenders may be struggling to get funding.

The yield on Spanish and Italian 10-year bonds rose again to more than 5.2 and 5.5pc respectively amid fears that the ECB's bond-buying programme could be curtailed as enthusiasm for the bailouts seemed to be waning.

Ms Merkel's defeat over the weekend was her party's fifth election loss this year.

"Europe is being hammered on the debt crisis," said Henrik Drusebjerg, senior strategist at Nordea Bank in Copenhagen. "It's Ms Merkel getting slapped at the regional election yesterday."

In Dublin, CRH fell more than 5.5pc on falling confidence in the American economy ahead of US President Barack Obama's jobs speech on Thursday.

US markets were closed yesterday but futures indices indicated heavy falls could be expected when they open this afternoon.

Irish Independent

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