Deutsche Bank, UBS shares fall as European banking crisis fears return

London (CNN) European bank shares fell on Friday in a sign that investors remain nervous that the recent crises at some banks could spill over into the wider sector.

Europe’s Stoxx Europe 600 Banks index, which tracks 42 major EU and UK banks, fell 5% mid-day in Europe. The index is down 19 percent from the highest at the end of February. London’s bank-heavy FTSE 100 index fell 2%.

Shares in Germany the German bank (DB) plunged 14%, while the shares in UBS (ACPTX) and Swiss credit (AMJL) — which is not part of the Stoxx Europe 600 Banks index — fell 6.7% and 7% respectively on Friday, after falling 4.3% and 3.6% on Thursday.

The costs of insuring against a possible default on the debt from Deutsche Bank – Germany’s largest lender – have risen in recent days. Deutsche’s credit default swaps (CDS) soared to 203 basis points on Thursday, according to data from S&P Market Intelligence. It is the highest level since early 2019.

The bank’s five-year CDS was trading 8% higher, at 220 basis points, at 7:51 a.m. ET Friday.

Deutsche Bank declined to comment.

“The rising price of insuring CDS senior debt is weighing on Deutsche Bank, as well as other European banks, on concerns over the impact of rising interest rates on the broader economy and banks’ balance sheets,” Michael Hewson, market analyst at CMC Markets, told CNN.

Last week, the European Central Bank stuck to its plan to raise interest rates by half a percentage point, judging that inflation posed a greater threat to the economy than recently. unrest in the banking sector.

Then, on Thursday, the Bank of England raised its key interest rate by a quarter of a percentage point after data showed a surprise rise in inflation last month.

“The fear of contagion is not yet gone,” Neil Wilson, market analyst at trading platform Markets.com, said in a note on Friday.

Shares in Germany Commerzbank (CRZBF) and France’s Societe Generale (BICEY) also suffered heavy losses, falling 8% and 7% respectively by midday.

Swiss banks were still rattling

Last week, Switzerland’s largest bank bought UBS the embattled Swiss rival for 3 billion Swiss francs ($3.25 billion) in an emergency takeover brokered by the Swiss government.

That helped restore some calm to markets rocked by the failure earlier this month of two US regional banks. But investors were on their toes again on Friday.

The falls at UBS and Credit Suisse come after Bloomberg reported on Thursday that the US Department of Justice (DOJ) was investigating whether their employees had helped Russian oligarchs evade Western sanctions.

The DOJ had sent subpoenas to the employees before UBS took over Credit Suisse, according to the report.

Employees at some major U.S. banks are also part of the investigation, Bloomberg said.

Hewson said “the DOJ investigation of UBS certainly plays a role in the share price weakness” in European banks.

U.S. futures were also down in premarket trade, with the Dow down 1.1%, the S&P 500 down 1% and the Nasdaq Composite down 0.71%.