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Banks feel the pain on global markets amid fears of impending crisis

Published 09/02/2016

Banks took a beating in a tough trading day on global markets
Banks took a beating in a tough trading day on global markets

High street banks led further punishing share losses on global markets on worries the sector is heading for another crisis.

UK blue chip banks players were heavily in the red , with Barclays down 4% and Lloyds Banking Group and fellow State-backed lender Royal Bank of Scotland both down more than 2%.

London's wider FTSE 100 Index was also seeing steep falls in volatile trading that saw it shed 1.6% at one stage, before clawing back to stand 0.6% lower, while it was a similar picture in Germany and France where the Dax and Cac 40 fell 1% and 2% respectively.

Spooked investors have been ditching bank shares in recent weeks amid anxiety the sector could see a repeat of the 2008 meltdown due to the slowdown in China , wider global economic woes and the falling price of oil.

Rock bottom interest rates - and even negative interest rates in a growing number of countries - have added to concerns that banks are vulnerable.

Independent financial analyst Louise Cooper of CooperCity said bank share falls are "beginning to look ugly".

She said: "Markets are telling us that banks from all over the world - highly sensitive to economic conditions - are in trouble."

Barclays suspended its shares on Monday due to volatile trading, closing down more than 5% in a dismal session for the wider FTSE 100 Index, which fell 2.7%.

Deutsche Bank fared even worse in Monday's sell-off, down 9%, and its embattled new chief executive John Cryan moved to reassure investors and employees on Tuesday that the German lender is "rock-solid".

In a memo to employees, Mr Cryan reportedly said he was confident of the bank's ability to meet legal costs and was personally leading a senior team handling regulatory and legal cases.

The concerns over bank exposure to China, emerging markets and plunging oil prices have wiped billions of pounds off the value of listed banks so far this year.

In the past month alone, Barclays shares have shed 22%, RBS has dropped 21%, Lloyds is 17% lower, HSBC is 14% down and Asian-focused player Standard Chartered is 20% down.

The recent share falls and wider market turmoil led Chancellor George Osborne to postpone the retail investor share sale in Lloyds late last month.

The Chancellor said he would wait until volatility in the markets had "calmed down", before pressing ahead with sale of the Government's near 10% stake in the lender.

But Bank of England governor Mark Carney last week sought to reassure over the "resilience of the UK financial sector".

On presenting his latest quarterly inflation report, he said major banks are "well capitalised", adding that recent Bank of England stress tests assumed a "much more severe shock to Chinese and emerging market growth, sharply higher spikes in financial market volatility and steeper falls in risky asset prices".

UK banks will begin reporting their full-year figures over the next few weeks, with HSBC the first to unveil results on February 22.

The FTSE 100 Index dropped to its lowest level for three years at market close, falling 1% to 5632.1.

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