Bank Stocks Decline Amid U.S. Lending Concerns
LONDON – NOVEMBER 5, 2020: The Canary Wharf business district, often cloaked in fog, houses significant financial institutions like Citigroup, Barclays, and HSBC.
On Friday, bank shares worldwide took a notable dive. This downturn followed concerns about bad loans surfacing in the U.S., which then crept into foreign markets.
The U.S. stock market showed signs of distress on Thursday as banks like Zions and Western Alliance reported troubling lending practices. Even with some robust earnings reports, the bank sector faced considerable trading pressure. Existing anxieties about financing, compounded by recent auto company bankruptcies, have prompted JPMorgan’s Jamie Dimon to remark, “If you see one cockroach, there’s probably more.”
In early trading, shares of major U.S. banks appeared sluggish. JPMorgan dipped 1.5%, while Citigroup and Bank of America followed with declines of 1.9% and 2.9%, respectively.
Meanwhile, European markets weren’t spared. The Stoxx Bank index in Europe fell nearly 3%, reflecting significant losses among major financial institutions. Notably, Spain’s Sabadell faced a failed takeover attempt, and BBVA’s shares plummeted by 8.9%. Deutsche Bank dropped 6.9%, and Barclays, the largest bank in Britain, fell 5.4%.
“Sudden Reaction”
In the Asia-Pacific region, several listed banks also dropped amid ongoing trading. Japanese firms, particularly those with U.S. market exposure, were notably impacted. Mizuho Financial Group saw a decrease of 4%, and insurance companies like Sompo Holdings and Tokio Marine fell by 4.7% and 3.5%, respectively. Shares of HSBC listed in Hong Kong also slipped by 2%.
The decline initially echoed the performance of U.S. regional banks, which faced significant sell-offs following reports of problematic lending. Zions Bancorp fell over 13%, and Western Alliance dropped more than 10%. By the end of trading, the SPDR S&P Regional Banking ETF was down more than 6%, with only one constituent seeing a gain.
In premarket trading on Friday, losses continued, with Zions down another 1.1% and Western Alliance decreasing by 1.5%.
Russ Mold, an investment director, noted that certain troubling patterns in the U.S. banking sector are causing ripples in the European markets. “People are beginning to wonder why these issues have cropped up in such quick succession,” he said, questioning overall risk management and lending prudence.
Mold suggested that fear might lead investors to pull back from UK-listed banks, although he emphasized there wasn’t tangible evidence of issues among major institutions. He added that negative sentiment tends to escalate when troubles arise elsewhere.
David Barker, from GAM’s European equity team, noted that while there have been three credit issuance concerns in the U.S. recently, he still sees no concrete evidence of widespread structural problems in lending. According to him, issues seem to stem from collateral integrity rather than systemic failures.
Barker also mentioned that European banks and insurers are currently reacting similarly, with prior strong performance seemingly exacerbating current downturns. However, he believes that European banks are solidly capitalized and have minimized risks over the past decade.
He expressed optimism, stating this scenario shouldn’t mirror the panic of March 2023, when U.S. banks faced severe issues. Assuming no further shocks, he expects the recent dip in European banks to be a temporary blip.
