LONDON: European and Asian stock markets slumped Friday as Deutsche Bank shares plunged on widening concerns over its financial strength, causing ripples of fear across the global financial sector.
Bloomberg reported that several hedge funds had withdrawn their investments in Germany’s biggest bank. It comes over worries about the lender’s viability after US authorities slapped it with a $14-billion (16.2-billion-euros) penalty over its sale of mortgage-backed securities prior to the 2008 financial crisis.
That led to Deutsche’s share price plunging more than 9.0 percent to below 10 euros for the first time, before pulling back approaching midday in Frankfurt. Around 0945 GMT, its shares were down 4.0 percent at 10.44 euros.
“After a couple of days of relief, the markets are back in the red, with Deutsche Bank continuing to position itself as the number one worry for investors,” said Spreadex analyst Connor Campbell.
There are fears the fine could batter the already fragile firm, fuelling talk that it would become another Lehman Brothers, the Wall Street titan whose downfall precipitated the global downturn six years ago.
Agence France-Presse sources knowledgeable of the situation confirmed 10 funds had pulled investments, but the bank said the report gave an overly negative view of the situation, noting it still had some 800 funds as customers who understand its “stable financial position”.
Sea of red
The banking sector was a sea of red across trading screens. In Paris, shares prices for Societe General and BNP Paribas slid 3.0 percent compared with closing values Thursday.
Spain’s Santander slumped 4.5 percent, Italian lender Unicredit tumbled 4.0 percent and Barclays gave up 2.3 percent in London.
In earlier Asian deals, Japan’s Mitsubishi UFJ Financial Group dropped more than two percent and Sydney-listed Commonwealth Bank lost 1.5 percent.
“Fear is that the longer Deutsche Bank gets hit, the more the entire banking sector will get into crisis,” said Markus Huber, a trader at City of London Markets.
Italy’s Finance Minister Pier Carlo Padoan, whose country is struggling to stabilize its own undercapitalized banks, said Deutsche’s woes pointed to a need to strengthen the financial sector across Europe.
“This business is a reminder that we still have great efforts to make to improve the state of the banking system,” he told the La Stampa daily.
“All of us need to find solutions that must be managed with the necessary caution.”
He added, however, that any banking rescue plan, private or state-sponsored, “must be implemented within the
framework of the banking union”.
Offsetting the banks’ troubles, official data Friday showed eurozone consumer prices rose to a near two-year high of 0.4 percent in September — offering hope that a disputed programme by the ECB to stimulate the economy may be delivering.
British official second-quarter growth was meanwhile revised higher slightly to 0.7 percent from 0.6 percent, offering hope for the economy post the Brexit vote that took place in late June.