By Elena Vardon
Shares in European banks sank further on Friday, adding to losses triggered by Wednesday's announcement of U.S. tariffs and their effects on global trade and economic activity, after China slapped retaliatory tariffs on U.S. goods.
The pan-European Stoxx 600 banking sub-index dropped around 10% in midday European trading, piling onto Thursday's 5.5% losses on fears of an eventual toll on the sector from the economic impact of U.S. President Trump's new tariffs.
Banks were by far the worst-hit sector in the region. By comparison, the wider Stoxx 600 Index had slipped 4.6% by midday on Friday, extending the selloff sweeping through global markets as recession fears push investors to dump stocks and hide in the safety of government bonds.
Beijing said it would hit all U.S. goods with a 34% tariff, matching the U.S.'s latest levy on Chinese goods. The baseline tariff imposed by the Trump administration is 10%, but higher rates will apply to partners judged "bad actors" on trade, including China and the European Union, which faces a 20% levy.
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 affect 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 more than 7%, adding on to the previous day's 9% and 13% respective falls.
European bank shares had been enjoying a rally after a period of higher interest rates boosted their top lines, allowing them to return bumper payouts to shareholders, and a rosier economic picture emerged in the recent months across the continent. Friday's drop pulls back its gains over the year to date to just 5%.
Write to Elena Vardon at elena.vardon@wsj.com
(END) Dow Jones Newswires
April 04, 2025 07:28 ET (11:28 GMT)
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