Europe close: Bank stocks pummelled

European equity markets fell on Monday, with the mood directed by Italy's tanking bank shares ahead of the country´s upcoming referendum.

By the close, the benchmark Stoxx Europe 600 index was down 0.77%, while Germany’s DAX was 0.88% lower. Italy’s FTSE MIB suffered the heaviest losses, down 1.81% as bank stocks slumped amid concerns the referendum on constitutional reform could precipitate the fall of Prime Minister Renzi’s government.

The Stoxx 600´s gauge of lenders shares retreated 1.8% to 155.22.

In the UK, the Bank of England was scheduled to publish the results of its 2016 bank stress tests on Wednesday, alongside its biannual Financial Stability Report.

On 4 December, Italians will be asked to decide whether to accept a package of constitutional reforms put forward by centre-left Prime Minister Matteo Renzi, who has said he would resign if the proposals are rejected.

Spreadex’s Connor Campbell said: "With the likes of Unicredit and Banca Popolare di Milano dropping around 4%, and the ever-troubled Monte dei Paschi plunging as it revealed legal claims totalling €8.5bn, Campbell said “the market has taken a good look at Sunday’s Italian constitutional reforms referendum and decided it doesn’t like what it sees. The vote is being labelled Italy’s Brexit-moment – if ‘no’ prevails it could lead to political chaos in one of the eurozone’s most precariously balanced members.”

Market participants are concerned that if this results in a 'no' vote, political uncertainty will ensue, making the task of sorting out non-performing loan issues at the country’s banks even more difficult.

In France, the CAC 40 was down 0.88% as Francois Fillon won the primary race to become the French right’s presidential candidate next spring.

The hope in markets was that Fillon would be able to see-off far right National Front leader Marine Le Pen in second round voting in the French presidential elections.

However, in a research note penned on 27 November HSBC cautioned that: "[...] Of course, polls have been unreliable. With still more than seven months to go before the final vote, there could be many twists and turns in the French presidential race."

Meanwhile, oil prices bpunced off their session lows, with West Texas Intermediate rising 2.5% to $47.25 a barrel and Brent up by 2.4% to $48.42, respectively. Prices fell sharply on Friday after Saudi Arabia said it wouldn’t meet with non-OPEC Russia ahead of the OPEC summit in Vienna as originally planned.

Stoking buying interest, on Monday afternoon Iraqi oil minister Jabar Ali al-Luaibi said he was "optimistic" that OPEC would be able to reach a deal when it met on Wednesday.

Elsewhere, Aberdeen Asset Management fell back despite posting annual results that were in line with expectations and the company maintaining its dividend.

Antofagasta edged higher after agreeing to sell the Michilla mine to Chilean mining group Haldeman Mining Company for up to $52m following the closure of the mine at the end of last year.

Swiss food group Aryzta was under the cosh after it reported a drop in quarterly revenue due to lower sales in North America.

Tesco fell following a report in The Times that investigators are looking into whether Tesco Bank ignored a warning about a security flaw in its payment system that allowed fraudsters to steal millions of pounds from the accounts of thousands of its customers.