European Banks Index Hits Record Low as Virus Cases Surge

(Bloomberg) -- A benchmark tracking European banking stocks hit its lowest intraday level since its creation in 1991, as a surge in Covid-19 infections in several countries fueled fresh concerns about the health of the region’s economy.

The Stoxx Europe 600 Banks Index briefly fell as much as 1.7%, with the U.K.’s HSBC Holdings Plc, France’s BNP Paribas SA and Italy’s Intesa Sanpaolo SpA among the biggest contributors to the drop. The gauge was down 1.2% at 1:20 p.m. in London.

European banking stocks are “playing catch up” with their underperforming U.K. peers amid the recent spike in Covid-19 cases in countries like Spain and France, Goodbody analyst John Cronin said by phone. The U.K. FTSE 350 Banks Index was down 1.3% and is set to close at the lowest since October 1992. The gauge has been trading around 28-year lows in recent weeks as Brexit risk and concerns about negative rates adds to concerns of a slow recovery from the virus crisis.

“We’re into the next journey, and we could see European banks further fall in value despite the fact that they’re already at record lows,” Cronin said, citing a greater level of uncertainty in terms of the hit to loan books and as a potentially slower economic recovery raises the probability of more negative rates in Europe.

Banking profit margins continue to be squeezed by tumbling interest rates, while the prospect of mounting bad debts and repeated failures in compliance are weighing on the sector. A fresh wave of M&A in Europe and the potential return of dividends have so far failed to reinvigorate the industry group’s stocks.

In the latest virus developments Friday, Spain’s government asked for curbs on movement to be extended across the entire city of Madrid, and London was placed on the U.K.’s national watchlist.

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