Banking stocks slide towards EU bullish top – POLITICO

The crisis descended on a summit of European leaders in Brussels on Friday, as stock market jitters and turmoil in the banking sector undermined confident assurances that all was well.

The early morning bullish assurances were eclipsed within hours by a financial sector that turned bearish, with Deutsche Bank leading a fall in European banking stocks.

The split-screen moment was eerily reminiscent of the eurozone crisis a decade ago, when EU summits were regularly sidetracked by the troubles of the sovereign debt crisis.

Although officials were keen to stress that the current situation was not comparable to the last crisis, which ultimately forced European countries to seek international bailouts, the financial situation was grim on Friday – and one of the biggest signs to date that bank failures born in the United States were seeping into the EU.

Polish Prime Minister Mateusz Morawiecki, a former banker, told POLITICO in an interview that he was “concerned about certain financial institutions in Europe”, pointing in particular to the role of investment funds in the banking sector.

Shares of Deutsche Bank fell 14% at one point on Friday, a drop that came on the heels of Credit Suisse’s collapse last week and the bank’s takeover by rival UBS.

Today everyday

The timing could not have been worse for European Central Bank President Christine Lagarde and Eurogroup President Paschal Donohoe, who were meeting EU leaders as part of a euro summit – a regular economic update sometimes added to EU leaders’ meetings.

In a sign of the gravity and sensitivity of the situation, the number of officials who could be briefed during Friday’s talks was limited, according to two EU officials.

The two main EU leaders – Ursula von der Leyen and Charles Michel – also abandoned their traditional post-summit press conference, although two diplomats insisted the decision had been made before the deal started. to lower.

Most of the leaders also left the meeting without speaking to the press. But for those who did, the message was clear: nothing to see here.

“We believe that our banks are resilient, strong, that the decisions we have made regarding the amount of liquidity, the amount of capital that our banks hold will ensure that they continue to be resilient in the times to come,” said the leader of the Eurogroup, Donohoe. told reporters, seeking to calm the markets.

His language echoed that of Lagarde who – perhaps aware that his every word can move markets – declined to comment publicly on Friday. But privately, she reassured executives that Europe’s banking sector would weather the storm, thanks to strong capital and liquidity ratios, according to three people in the room.

Crucially, she also said the ECB was on hand to provide liquidity if needed.

“The ECB’s toolkit is fully equipped to provide liquidity to the eurozone financial system,” she said, according to a person briefed on the talks, who like others only spoke at the briefing. sensitive only on condition of anonymity.

German Chancellor Olaf Scholz was also bullish, particularly on Deutsche Bank, the troubled German lender that led the bank sale on Friday.

“There is no need to worry,” he told reporters after the meeting. “Deutsche Bank has fundamentally modernized and revamped its business model and is a very profitable bank.”

Italian Prime Minister Giorgia Meloni agreed, saying: “The fundamentals of the system are solid.”

Other leaders reiterated that things had evolved since the banking and sovereign debt crisis, pointing to new systems for the euro zone, including a unified banking supervisory system and a board of directors to monitor failing banks.

“Fortunately, Europe has learned the lessons of the financial crisis of the last decade,” Spanish Prime Minister Pedro Sánchez said after the meeting, noting that Friday’s market maneuvers had not changed the statement that ministers had approved the conclusion of the meeting.

Public trust, private anxiety

But behind the scripted public statements, a deep unease permeated the atmosphere in Brussels.

“We are confident in our metrics and our buffers, but of course it is a matter of confidence, which always makes it difficult to predict how financial markets will react,” said an official in the room during the discussion with Lagarde. . well, but everyone is watching this closely and we remain vigilant.

Others pointed out that the much-heralded EU banking union – an interdependent system of surveillance and supervision that was put in place in the wake of the financial crisis – remains incomplete.

The euro area still does not have a common deposit insurance scheme to protect citizens’ bank accounts. Donohoe, who urged fellow leaders to complete the banking union, said the latest news should reinvigorate the process.

“We have to implement what we have agreed,” he said.

Countries like Germany have been reluctant to sign up to a common deposit insurance scheme, insisting that countries like Italy must first reduce their economic risks. The dispute stalled negotiations.

But Scholz said on Friday there was now an incentive to move forward on both banking union and capital markets union – a years-old proposal to create a pan-European market to access to capital.

“We will try to speed up the whole process,” Scholz said. “It is important for the future of our European Union. And the more we succeed in doing this, the more the power of growth will be fostered.”

Hans von der Burchard, Gregorio Sorgi, Jacopo Barigazzi and Lili Bayer contributed reporting.