Europe close: DoJ swats banks lower

European stocks extended losses, with banks under the cosh as Deutsche Bank faces a $14m fine from the US Department of Justice, and as quadruple witching in the States added to volatility in stockmarkets.

The benchmark Stoxx Europe 600 index was down 0.74% by the close of trading, Germany’s DAX was down 1.49% and France’s CAC 40 was 0.93% weaker. Milan´s FTSE Mibtel got a drubbing, retreating 2.43% to 16,192.16.

"Tit-for-tat of fines between European and US regulators could mean the eventual figure is higher than Deutsche Bank could otherwise have hoped for," CMC Markets´s Jasper Lawler said in a note to clients.

“It just goes to show that we’re still dealing with the same old headwinds: this low-interest rate environment, which will go on for a while, and the regulatory scrutiny,” Lawler also said.

Indeed, Europe-focused investment funds registered a record 32-consecutive week of outflows to the tune of $2.5bn over the latest five-day stretch, according to Bank of America-Merrill Lynch.

Thus, pacing Friday´s losses was the Stoxx 600 gauge of bank shares, which slid 2.02% to 139.64.

Oil prices retreated on the back of reports of increased exports from Libya and Nigeria. West Texas Intermediate finished 1.785% lower to $43.14 a barrel and Brent crude lost 1.283% lower at $45.99.

Banking shares were under pressure, led lower by Deutsche Bank, which slumped by over 8% after saying it had no intention of paying the US Department of Justice $14bn to settle civil claims regarding its handling of mortgage-backed securities that contributed to the 2008 financial crisis.

Peers Credit Suisse and UBS fell 5% and 2.8%, respectively. Banks were the worst performers, with RBS and Barclays at the top of the FTSE 100 faller board.

Naeem Aslam, chief market analyst at Think Markets, said: “The banking sector is where most of the pain is today and investors who have their position in Deutsche Bank are getting simply crushed.

"This claim has not appeared out of blue, it was expected, but the number is nearly four-fold higher what analysts were anticipating and this is putting the company’s share under immense pressure. But our concern is that this could be just a start and other European banks could face a similar fate and this why investors are leaving the boat with respect to the banking sector.”

Elsewhere, corporate news was scarce. Aviation support and aftermarket services company BBA Aviation rose after announcing that, after a number of approaches and a formal review, it has reached agreement with John Menzies on the terms of the sale of commercial aviation services subsidiary ASIG for $202m cash.

The FTSE 250 firm said Menzies is funding the acquisition through raising additional debt and equity and, in addition to customary approvals, the transaction will require the approval of its shareholders.

Supermarket retailer Wm Morrison gained ground after Exane BNP Paribas upgraded the stock to ‘neutral’ from ‘underperform’ and lifted the target price to 200p from 165p following its first-half results on Thursday.

Friday marks the rare quadruple-witching event, the quarterly options expiry day in New York, with volumes expected to be heightened as a result, IG's Joshua Mahony said.

"The shifting of such a huge amounts of contracts will likely drive a significant amount of volatility for the day, building on the substantial moves instigated last Friday."

Worse than expected US consumer price data for August added to the volatile mix, weighing on both Sterling and the single currency.

So-called 'core' consumer prices, which strip-out the more volatile components such as food and energy, increased by 0.3% month-on-month and by 2.3% from a year ago.

Economists had penciled in a 0.1% month-on-month (1.0% year-on-year) increase in headline CPI and gains of 0.2% and 2.3% in underlying prices.

Euro area unit labour costs slowed sharply in the second quarter of 2016, to an annual pace of 1.0%, down from the 1.6% clip observed in the first three months of the year.