Shares in European banks slumped on Friday on worries over their health after a series of interest-rate hikes around the world.
The Stoxx Europe 600 SX7P, -4.01% banks index dropped over 4%, with shares in Deutsche Bank DBK, -7.99% down 7%, Bank of Ireland BIRG, -4.18% down 6% and HSBC Holdings HSBA, -5.46% falling 5%. On Thursday, the SPDR S&P Regional Banking ETF KRE, -8.11% slumped 8%.
Bank fears have been exacerbated this week by Silvergate Capital SI, -42.16% voluntarily liquidating its banking subsidiary, and Silicon Valley Bank parent SVB Financial SIVB, -60.41% launching a $1.75 billion share sale to plug a hole caused by the sale of a loss-making Treasury securities portfolio.
“This is an issue that could hit all the banks, including the big banks, because the banks amassed a lot of assets since the 2007/2008 financial crisis at rising prices, and they had to pay nearly no compensation for bank deposits, as interest rates have been near zero for such a long time,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Banks that have traditionally borrowed short and lent long are being hurt a deeply inverted yield curve. The 2-year yield TMUBMUSD02Y, 4.839% earlier this week was its most inverted against the 10-year yield TMUBMUSD10Y, 3.858% since 1981. The German 2-year TMBMKDE-02Y, 3.159% yield is also higher than the German 10-year TMBMKDE-10Y, 2.550%.
Read: 10 banks that may face trouble in the wake of the SVB Financial Group debacle
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