By Elena Vardon
Shares in European banks slumped further on Friday, adding to losses triggered by Wednesday's announcement of U.S. tariffs and their effects on global trade and economic activity.
The pan-European Stoxx 600 banking sub-index fell around 6% in early European trading to levels last seen in early February, piling onto Thursday's 5.5% drop on fears of an eventual toll on the sector from the economic impact of U.S. President Trump's new tariffs.
The wider Stoxx 600 Index slipped 1.8% on Friday morning, extending the sell-off sweeping through global markets.
Banks aren't directly targeted by the levies but are exposed to the effects of slower economic growth. Shifts in economic activity could affect demand for loans, the creditworthiness of financed sectors and asset quality.
The sector will also face the impacts of central bank moves to tame inflation, given that the evolution of interest rates could impact banks' net interest margins--the difference between what they charge on loans and pay out on client deposits--which are an important revenue driver. Capital market activity could also be damped by market turbulences, hitting banking fees.
Lenders in countries with relatively low exposure to U.S. exports and manufacturing, and those focused on serving domestic customers and businesses, are more insulated from the fallout. Jefferies said in a note to clients that it sees Spanish, French and Greek banks as best positioned in this scenario.
HSBC and Standard Chartered do most of their business in Asia--where tariffs are set to hit the hardest--and saw their stock prices drop roughly 5%, adding on to the previous day's 9% and 13% respective falls.
While there are risks to banks' earnings, many unknowns remain, analysts at Keefe, Bruyette & Woods wrote. They added that it seems logical that equity stocks trade with higher risk premiums in the near-term as politicians negotiate tariffs and exporters assess raising prices or moving production across continents.
"We expect more turbulence and emotional share price responses over coming days," Shore Capital said in a note.
Write to Elena Vardon at elena.vardon@wsj.com
(END) Dow Jones Newswires
April 04, 2025 05:11 ET (09:11 GMT)
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