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European Banking Shares Tumble as Earnings Updates Disappoint Investors

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Shares in major European banks experienced a significant drop in early trading on Thursday, following disappointing earnings updates. Investors, already concerned about declining profit margins after a series of interest rate hikes, were left underwhelmed by the latest financial reports. The broader European banking index fell by as much as 2.4% to reach its lowest level in four months. Among the top fallers on the index were Standard Chartered, down 11%, Swedbank, down 8.5%, and BNP Paribas, down 4%.

These share movements have brought attention to the upcoming decision of the European Central Bank (ECB) regarding benchmark rates, expected to remain unchanged later today. This decision will break a 15-month streak of rate hikes. Major banks have greatly benefited from higher interest rates, which were implemented to control inflation. Such rates have helped boost lending revenue, despite the increased risk of loan defaults. However, investors are now concerned that this trend may be drawing to a close.

Chris Hiorns, head of multi-asset and European equities at EdenTree, expressed sympathy for central bankers facing the challenging task of setting interest rates at this time. He highlighted the presence of conflicting indicators that make it difficult to make a clear decision. Hiorns also noted that banks continue to be attractive investments but acknowledged that lenders with large investment arms are being affected by a global dealmaking slump.

In addition to the concerns surrounding interest rates, European banks with significant operations in Asia are facing challenges due to China’s economic fragility. Standard Chartered, listed in London, announced a profit slump, largely influenced by its exposure to China’s real estate and banking sectors. As a result, its stock fell by as much as 17% at the open, leading to a temporary trading halt.

Although France’s BNP Paribas, the largest bank in the eurozone, reported quarterly results in line with expectations, several analysts pointed out unexpected weaknesses in its retail and consumer finance activities. As a result, the FTSE 350 Banks index reached its lowest level since March, experiencing a decline of 2.7%.

Despite the overall decline in European bank shares, several Spanish banks managed to buck the downtrend. Sabadell, in particular, saw a rise of approximately 5% after raising its outlook for 2023 net interest income growth, largely due to higher interest rates.

In conclusion, European bank shares experienced a significant drop following disappointing earnings updates, raising concerns among investors regarding declining profit margins after a series of interest rate hikes. The European Central Bank’s decision on benchmark rates, expected to remain unchanged, has added to the uncertainty in the sector. Banks with large investment arms are being impacted by a global dealmaking slump, while those with operations in Asia are facing challenges due to China’s economic fragility. Despite the downturn, several Spanish banks managed to perform well, driven by higher interest rates. The overall impact of these developments on the banking sector remains to be seen.

More detail via Daily Mail Online here… ( Image via Daily Mail Online )

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