Euro zone bank stocks hammered by stagflation fears

By Joice Alves

LONDON, March 7 (Reuters) - Euro zone bank stocks fell to a 13-month low on Monday on concerns a possible U.S. and European ban on Russian oil imports could slow economic growth and lift inflation even higher.

The euro zone bank index .SX7E tumbled as much as 9.5% in early London trading. It was down 5.2% at 1020 GMT.

Shares in UniCredit CRDI.MI , Commerzbank CBKG.DE , Deutsche Bank DBKGn.DE , Raiffeisen RBIV.VI , Bank of Ireland BIRG.I and Societe Generale SOGN.PA were among the biggest fallers, down between 4% and 10%.

Reports that Europe and the United States were considering banning oil imports from Russia sent oil prices to a 2008 high of around $139 per barrel.

"Fears around stagflation are at the forefront of investor minds," Bernstein strategists Sarah McCarthy and Mark Diver said, and European banks have been among the hardest hit.

The euro zone bank index has shed 37% in less than one month, after climbing to its highest since 2018 in February.

Just one month ago investors were betting on European banking stocks riding higher as the continent's economy was recovering from the pandemic, but Russia's invasion of Ukraine has hit lenders through multiple channels.

Economy-sensitive cyclical stocks, such as banks, which were seen thriving from the easing of the pandemic, are now expected to be among the worst hit from the uncertainty caused by the Ukraine conflict.

Lenders were also seen as the main beneficiary of a potential European Central Bank interest rate hike as investors expected the central bank to move away from sub-zero rates in a bid to tackle rising inflation. But since the invasion money markets have scaled back their ECB rate hike expectations amid rising fears for the economic damage caused by the war.

A wave of sanctions on Russia over its invasion of Ukraine has also thrown the global banking industry deeper into turmoil as Western countries try to squeeze Moscow's access to cash.

Banks with exposure to Russia and Ukraine will need to make hefty provisions for the drop of the valuation of their assets in the region, analysts said.

Austria's Raiffeisen, France's Soc Gen, and Italian lenders UniCredit and Intesa SaoPaolo are the most exposed to the Russia economy.
Reporting by Joice Alves; Editing by Saikat Chatterjee and Nick Macfie

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.