Tags: EU | Europe | Banks

European Bank Stocks Drop on Threat of New Tax, Economic Fears

Thursday, 18 Aug 2011 12:58 PM

European bank stocks got battered Thursday as fears over the global economic recovery combined with the prospect of a new tax on financial transactions and renewed concerns over Greece's bailout.

Most bank stocks across Europe were underperforming already fragile markets, with French bank Societe Generale and British bank Barclays leading the way down, with losses of around 8 percent.

Analysts said bank stocks were particularly vulnerable as markets in general headed lower as investors continued to fret about the global recovery. Morgan Stanley's decision to cut its global growth forecasts for 2011 and 2012 served to highlight the exposure of banks' revenues in the coming period.

"There has been no respite for financial stocks," said Ben Critchley, a sales trader at IG Index.

Banks have also been undermined by Tuesday's revelation from German Chancellor Angela Merkel and French President Nicolas Sarkozy that the two countries' finance ministers would come up with a proposal to slap a tax on all trading transactions.

A transaction tax -- a small percentage taken from foreign exchange and share transactions, for instance -- has been proposed as a source of money to pay for bank bailouts but could well hurt trading volumes -- a key source of revenue for many of Europe's banks.

"The proposed financial transactions tax isn't a new concept and has been mentioned before, but only now has it been put forward as a plausible policy idea which explains the market reaction," said James Hughes, senior market analyst at Alpari UK.

"Speculative volumes are likely to fall sharply as a result of the new transaction tax which will probably hurt share prices of large banks, financial institutions and intermediaries," Hughes added.

A Finnish deal to get collateral from Greece to secure its rescue loans to the debt-ridden country has also raised renewed concerns over Europe's handling of its debt crisis.

Many of Europe's banks, including Societe Generale and Germany's Commerzbank, have already taken big writedowns over their holdings of Greek debt and anything that makes Greece's second financial bailout less likely has been viewed with dismay.

Last month's decision by eurozone countries to grant Greece a second financial bailout, worth a total of 109 billion euros ($157 billion), called for banks, pension funds and other private institutions that hold Greek debt to take their share of the pain.

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European bank stocks got battered Thursday as fears over the global economic recovery combined with the prospect of a new tax on financial transactions and renewed concerns over Greece's bailout. Most bank stocks across Europe were underperforming already fragile markets,...
EU,Europe,Banks
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2011-58-18
Thursday, 18 Aug 2011 12:58 PM
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