European bank stocks, led by shares in UBS AG, fell sharply on Monday on concerns about a deepening global financial crisis in the aftermath of US investment bank Bear Stearns’ stunning collapse.
UBS, Switzerland’s largest bank, plunged 11.1 per cent to 25.28 Swiss francs in Zurich. UBS has been roiled by debt holdings and writedowns linked to the US subprime mortgage market, and its stock has dropped over 62 per cent in the last 12 months.
Fellow Zurich bank Credit Suisse slipped 7.6 per cent, while Germany’s Deutsche Bank declined 5.1 per cent in Frankfurt, even as some analysts said they believed these big banking institutions were less vulnerable to the liquidity fears that brought down Bear Stearns.
“As either the number one or two banks in their home countries, Credit Suisse, UBS and Deutsche Bank are more likely to be regarded as belonging to the ‘too big to fail’ club in our view,” analysts Matthew Clark and Vasco Moreno of research company Keefe, Bruyette & Woods Ltd. said in a note to investors.
Still, banks across Europe struggled Monday amid fears that the global financial crisis brought on by bad debts linked to the US housing market would continue and, perhaps, worsen.
In France, BNP Paribas shares fell 5.9 per cent, while Societe Generale, which has been embroiled in a trading scandal that cost it over $7 billion, sunk 9.2 per cent by midday. The share price for British bank Barclay’s slumped over 8 per cent.
UBS took the biggest dive, because it is considered to be among the worst-hit banks worldwide by the crisis, having written down more than $18 billion on assets linked to the subprime crisis and suffered its first annual loss since being formed in 1998. Analysts expect more writedowns to come.
The fall was also pushed by a report Sunday in the Zurich weekly SonntagsZeitung that UBS plans to cut up to 8,000 jobs as the bank expects difficulties for the next two to three years. CEO Marcel Rohner told management in Berlin last week that the bank would slash jobs by 5 per cent to 10 per cent in each of its divisions, the paper reported.
Like UBS, Deutsche Bank and Credit Suisse has written down some holdings in risky US markets, but the losses were modest in comparison to those at other financial institutions.
The Dow Jones Stoxx Europe 600 Banks index fell 4.3 per cent, coinciding with plunging Asian markets, a sinking US dollar, record oil prices and falling US stock index futures.
All this, a day after JPMorgan said it would acquire Bear Stearns for US$236.2 million - or US$2 a share - a buyout aimed at averting a bankruptcy and a spreading crisis of confidence in the global financial system. The acquisition completed a stunning collapse for one of the world’s largest and most venerable investment banks.
European traders had to catch up Monday with that development and a weekend announcement by the US Federal Reserve to cut the discount rate, its lending rate to financial institutions, to 3.25 per cent from 3.5 per cent, effective immediately. The Fed also created another lending facility for big investment banks to secure short-term loans that would be available to big Wall Street firms on Monday.
The Fed is expected to again cut its headline interest rate, the fed funds rate, by as much as a full percentage point to 2 per cent at a regular meeting set for Tuesday.
But all the news appeared to do little to convince traders that market problems would abate.
“Ultimately, the Fed’s acts should be positive for financial markets,” said Holger Schmieding, chief European economist at Bank of America. “The Fed has made it very clear that it will go to great lengths to counteract any systemic risks.”
But, Schmieding added, “the mere fact that a major US institution had to be rescued - that’s what is weighing on the market.” (AP)
Bank stocks hit by global financial crisis