Europe midday: Deutsche Bank leads latest bank share rout

European shares slumped again on Friday as Deutsche Bank shares plunged 13%, after after a sharp jump in the cost of insuring against the risk of default or bondholders.

The pan-European Stoxx 600 was down 2% at midday, with all major bourses lower. Credit Suisse and UBS were also in focus after a Bloomberg News report that the two banks are under scrutiny in a probe by the US Department of Justice into whether financial professionals helped Russian oligarchs evade sanctions. Shares in the duo were down almost 8%.

"We are still on edge waiting for another domino to fall, and Deutsche is clearly the next one on everyone's minds (fairly or unfairly)," said Chris Beauchamp, chief market analyst at IG.

"Looks like the banking crisis hasn't been entirely put to bed."

The sector has come under close scrutiny after the collapse of Silicon Valley Bank in the US last week, along with an industry-led rescue of California's First Republic Bank. Fears intensified when scandal-ridden Credit Suisse had to be bailed out via a $3bn takeover by its arch rival UBS.

Investors were also digesting comments from US Treasury Secretary Janet Yellen who said she was prepared to take further action to ensure that bank deposits stay safe amid banking system turmoil, a day after she said there would be no blanket guarantees.

In the UK, Bank of England governor Andrew Bailey said interest rates would continue to rise if firms hike prices, a day after the central bank raised tightened monetary policy for the eleventh time since December 2021.

On a light day of corporate news there was little else to drive sentiment. UK retail sales posted an unexpected jump as households cut back on eating out and takeaways in February, choosing food at supermarkets and other goods at discount outlets.

Retail sales unexpectedly rebounded by 1.2% in February from the month before, returning sales volumes to their pre-pandemic level, the Office for National Statistics said.

Economic growth in the eurozone continued to gather pace in March, according to a survey released on Friday, underpinned by the service sector as manufacturing stagnated.

S&P Global’s flash eurozone composite purchasing managers’ index - which measures activity in both the manufacturing and services sectors - rose to 54.1 from 52.0 in February. This marked a 10-month high and was well above consensus expectations of 51.9.

A reading above 50.0 indicates expansion, while a reading below signals contraction.

In other equity news, travel giant TUI fell sharply after launching a €1.8bn capital raise to repay German state aid it received at the start of the Covid pandemic.

Shares in Smiths Group rose as the British industrial technology company upgraded annual forecasts after first-half profit climbed 27% boosted by strong demand for its products from customers in the oil, gas, airports, ports and defence sectors.

Reporting by Frank Prenesti for Sharecast.com