Europe midday: Banks lead stocks lower as Deutsche slides

At midday, the benchmark Stoxx Europe 600 index was down 1.4%, Germany’s DAX was off 1.5% and France’s CAC 40 was 1.6% weaker.

Meanwhile, oil prices were a touch higher after Algeria’s energy minister Noureddine Bouterfa said on Sunday that all options for a production cut or freeze at this week’s OPEC meeting were on the table. Bouterfa said: "We will not come out of the meeting empty-handed.”

Oil prices had tumbled at the end of last week amid reports that Saudi Arabia was not expecting a deal to be made at the meeting.

West Texas Intermediate was up 1.2% at $45.03 a barrel and Brent crude was 1.6% higher at $46.62.

IG’s Chris Beauchamp said: “The new week has started with a bang, as the parlous state of Deutsche Bank explodes onto everyone’s radar once again. The bank has been limping along for months now, but reports that Angela Merkel may not step in to rescue the bank have sent the shares tumbling, dragging banks across the UK and Europe lower as a result.

“The gut feeling of most investors is that Berlin would be forced to act to avoid the loss of a key institution, but gut feelings do not always make the best trades. After a strong week for equities it looks like we are in for a swift reversal, as the last week of September lives up to its billing as being a particularly difficult one for stock markets.”

The Ifo Institute’s German business climate index rose to 109.5 in September from 106.3 the month before, beating expectations for a reading of 106.4.

The current assessment index increased to 114.7 from 112.9, surpassing expectations of 113.0, while the expectations index pushed up to 104.5 from 100.1. Economists had forecast a reading of 100.2.

Jennifer Mckeown, senior European economist at Capital Economics, said: “September’s rebound in the German Ifo Business Climate Indicator offers hope that the economy remains in good health after the more negative signs from other surveys and hard data.”

She added that the index is consistent with a further rise in GDP growth from the second quarter’s 1.7% to around 2%.

In corporate news, Deutsche Bank hit its lowest level ever following a report in German magazine Focus suggesting the country’s government has ruled out state aid for the lender. According to a Reuters report, a spokesman for Deutsche said the bank would solve its problems on its own, with no question of a capital increase.

The Stoxx Europe 600 banks index declined 2.2%.

Swiss-Irish food group Aryzta was also lower after the company reported an 8% drop in pre-tax profit for the 12 months to the end of July.

Icap was on the back foot after it said that highly experienced operating director Ken Pigaga has had second thoughts about moving to Tullett Prebon along with a colleague as part of its voice broking acquisition.

Lloyds was under the cosh after a downgrade by Goldman Sachs, while Hays and InterContinental Hotels were hit by downgrades from RBC Capital Markets and Morgan Stanley, respectively. Shire was also in the red as HSBC downgraded the stock to ‘hold’ from ‘buy’.

German specialty chemicals group Lanxess bucked the trend after saying it was buying Chemtura for about $2.12bn in cash.