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Shares in European Banks Plummet as Earnings Updates Disappoint Investors

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Shares in European banks experienced a sharp decline in early trading on Thursday, as investors reacted to disappointing earnings updates. This comes amid growing concerns that profit margins may have reached their peak following a series of interest rate hikes by central banks.

Standard Chartered, a London-listed bank that generates a significant portion of its profits in Asia, saw its shares plummet by as much as 17% at the start of trading. The poor performance prompted a temporary halt in automatic trading. At the same time, the FTSE 350 Banks index dropped to its lowest level since March, with a current decline of 2.5%.

However, not all European banks suffered the same fate. Several Spanish banks, such as Sabadell, managed to defy the downward trend. Sabadell, in particular, experienced a rise of approximately 5% after revising its outlook for net interest income growth in 2023. This positive adjustment was attributed to higher interest rates.

The decline in bank shares follows a string of disappointing earnings updates that have left investors concerned about the future profitability of these financial institutions. After a prolonged period of central-bank rate increases, investors are now questioning whether profit margins have reached their peak.

Standard Chartered’s significant exposure to Asia could explain its particularly sharp decline. As economic growth in the region slows down, investors are growing increasingly cautious about the bank’s prospects. This, coupled with the overall concerns about the banking sector’s profitability, has led to a significant sell-off of Standard Chartered shares.

Meanwhile, the positive performance of Spanish banks, such as Sabadell, may be attributed to the higher interest rates in the country. As interest rates rise, banks can benefit from increased net interest income, which refers to the difference between the interest income generated from loans and the interest paid out to depositors.

The FTSE 350 Banks index’s decline to its lowest level since March highlights the overall sentiment of investors towards the banking sector. While some banks managed to provide positive updates, the general trend remains negative.

Investors will closely monitor upcoming earnings releases from other European banks to gauge the overall health of the sector. The recent downturn experienced by European banks emphasizes the importance of diversifying investments and carefully assessing the risks associated with the banking industry.

More detail via Investing.com UK here… ( Image via Investing.com UK )

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