European markets fell sharply on Friday, with banking shares dragging down the region’s main indices and setting them on course for their steepest single-day drop in six weeks. Investors moved toward traditional safe-haven assets such as gold, which remains at record highs.
In Milan, the FTSE MIB dropped more than 2% after the first hour of trading, while the FTSE Italia Banche banking index slid 2.6%. Among the biggest decliners were Bper Banca (BIT:BPE) (-3%), Banca Mediolanum (BIT:BMED) (-2.90%), Banca Popolare di Sondrio (BIT:BPSO) (-2.80%), Unipol (BIT:UNI) (-2.90%), Banca Monte dei Paschi di Siena (BIT:BMPS) (-2.80%), UniCredit (BIT:UCG) (-2.80%), Mediobanca (BIT:MB) (-2.40%), Banco BPM (BIT:BAMI) (-2.20%), and Intesa Sanpaolo (BIT:ISP) (-2.10%).
Losses were widespread across the continent. Deutsche Bank (TG:DBK) fell 5%, Société Générale (EU:GLE) 4.7%, Banco Santander (LSE:BNC) 4.2%, BNP Paribas (EU:BNP) 3.7%, Commerzbank (TG:CBK) 3.1%, Caixabank (USOTC:CIXPF) 3%, UBS Group AG (NYSE:UBS) 2.9%, Bankinter (TG:A19VVH) 2.6%, and HSBC Holdings plc (LSE:HSBA) 2%. Banco Sabadell (BIT:1SAB) plunged 6.5%, while BBVA (NYSE:BBVA) dropped 5% after the failure of its takeover bid.
The selloff was triggered by a sharp drop in U.S. regional bank stocks amid growing concerns over rising risks and weakening credit quality.
The KBW Regional Banking Index fell more than 6% after Zions Bancorporation (NASDAQ:ZION) — down 13% on Thursday — reported a $50 million third-quarter loss tied to two loans made by its California unit. At the same time, Western Alliance Bancorporation (NYSE:WAL) — down 11% yesterday — filed a fraud lawsuit against Cantor Group V, LLC.
This latest turmoil follows the recent collapses of First Brands and Tricolor, which exposed gaps in banks’ risk controls and in the opaque credit market, where complex loan structures have made it harder to assess borrowers’ exposure. Those failures forced many debt investors to cut exposure to sectors tied to consumer and auto lending.
Some analysts, however, argue that these problems are unlikely to pose systemic risks, even if they weigh on sentiment in the near term.
“While substantial, the scale of NPLs is unlikely to in itself pose a risk to the system as a whole,” said Kyle Rodda, senior financial analyst at Capital.com, who attributed the issues to “lax lending standards and fraud, which have fueled fears that such behavior is endemic and could lead to further defaults.”
“This is an area where investors, especially new ones, tend to ‘sell now and ask questions later,’” wrote JPMorgan Chase & Co. in a note.
Analysts Anthony Elian and Michael Pietrini also questioned “why all these ‘isolated’ credit episodes seem to be occurring in such a short period.”
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