Banking stocks in Europe have declined about 8% over two weeks, reaching their lowest level since June and entering a technical correction. Societe Generale, Credit Agricole, and Deutsche Bank have each fallen more than 15% from recent highs. The selloff is driven by soaring bond yields, which increase risks for borrowers and reduce the value of sovereign assets held by banks.
Much of the pressure stems from France, where political instability and fiscal concerns have widened the yield spread between French and German government debt to its highest level in over a decade. Analysts note that while the sector has enjoyed strong gains since 2022, with shares tripling in that period, the current pullback reflects a reassessment of fundamentals rather than panic. Roberto Scholtes of Singular Bank warned that if interest rates remain elevated, non-performing loans could rise and loan growth slow.
However, he emphasized that bank balance sheets are stronger than during the European sovereign debt crisis over a decade ago. The downturn may also reflect crowded positioning, as banks have been a popular long trade among investors. A Bank of America survey found 25% of European fund managers were overweight banks last month, making it one of the most crowded trades.
Despite the pressure, supervisors say the benefits of higher yields on net interest income are largely offsetting the impact of falling bond prices for now. Sovereign bonds made up about 13% of bank assets at year-end, according to the European Banking Authority. The sector’s near-term direction depends on whether yield curves and risk premiums sustainably decline.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing