French, German banks take a pasting on solvency fears at US lender

The value of shares in France's major banks sank on Friday after trouble at a regional US lender sparked a Wall Street rout on the sector in the United States. Deutsche Bank shares were down nearly 10 percent at the opening in Frankfurt.

A trader at the Frankfurt stock exchange. REUTERS/Ralph Orlowski

Société Générale shares dropped 5.5 percent on the Paris stock exchange on Friday morning, while BNP Paribas lost 4.4 percent and Crédit Agricole tumbled 3.6 percent.

Across the Rhine, Deutsche Bank shares were down nearly 10 percent after the Frankfurt stock market opened, while Germany's second-largest lender Commerzbank saw its share value tumble by more than six percent.

In London, Barclays and HSBC shed more than five percent, while NatWest, Standard Chartered and Lloyd's were down around four percent.

The four largest US banks lost $52 billion in market value on Thursday after shares in SVB Financial, a major lender to the tech industry, sank by 60 percent.

The Silicon Valley bank took a beating after announcing a stock offering and offloading securities in an attempt to raise much-needed cash as it struggles with falling deposits.

SVB revealed that it had lost $1.8 billion following the sales.

'Please stay calm!'

In a bid to prevent a run on the bank, SVB boss Greg Becker asked clients to stay calm.

Investors fear that other banks could face similar losses as their bond portfolios have been hit by rising interest rates, analysts say.

Central banks worldwide have been hiking interest rates in an effort to tame decades-high inflation.

Shares in the biggest US bank, JPMorgan Chase, ended the day down 5.4 percent on Thursday.

Bank of America and Wells Fargo both lost 6.2 percent, while Citigroup was down 4.1 percent.

In another blow to the financial sector, cryptobanking giant Silvergate said it plans to close because of turmoil in the digital money market.

A mini wobble or something bigger?

"It is not a stretch to say that this episode is emblematic of the higher-for-longer interest rate regime we appear to be at the start of," Deutsche Bank analysts said in a note.

"We'll have to see how this story develops but something always breaks hard during or after a Fed hiking cycle," they said, in reference to the US Federal Bank's next policy meeting on 21 March.

"Is this another mini wobble or the start of something bigger? Tough to tell, but I would be stunned if there weren't many more casualties of this boom-and-bust cycle," the note continues.