SINGAPORE/LONDON (Reuters) – Shares in European and Asian financial stocks fell on Friday after a drop in shares of U.S. regional banks driven by concerns about rising risks and credit quality.
The banking sector’s exposure in two recent U.S. auto bankruptcies has revived concerns about credit standards more than two years after the collapse of Silicon Valley Bank, when high rates led to paper losses on its bonds.
European banks fell 2.6% in early trading, led by Deutsche Bank, down 5.8%, while Barclays lost 5% and Societe Generale fell 4.35%.
Citigroup shares fell 5.5% in Frankfurt, although with little trading.
Earlier in the day, Japanese banks and insurers had also plunged, with Tokio Marine, Mizuho and Mitsubishi UFJ Financial Group falling almost 3%.
The US regional banking index fell 6% on Thursday as two small banks revealed separate issuances.
Zions Bancorporation said it would take a $50 million loss on two commercial and industrial loans from its California unit, while Western Alliance revealed it had filed a lawsuit alleging fraud by Cantor Group V, LLC.
Analysts said that while the issues were unlikely to pose systemic risks, they would weigh on sentiment in the near term.
“While substantial, the size of the bad loans themselves is unlikely to pose risks to the broader system,” said Kyle Rodda, senior financial analyst at Capital.com.
Rodda said the underlying cause of both problems was lax lending standards and fraud, which has raised fears that such behavior is endemic and could lead to more defaults.
Other financial stocks in Asia also came under pressure, with Singapore’s DBS Bank falling almost 1%, while Australian insurer QBE fell 9%.
The recent bankruptcies of U.S. auto parts supplier First Brands and car dealer Tricolor have highlighted banks’ risk controls and the opaque credit market, where complex loans have made it more difficult to measure participants’ exposure.
The two crashes last month have forced some debt investors to trim their exposure to certain sectors over concerns about weakness in consumer and auto lending.
(Reporting by Ankur Banerjee in Singapore and Alun John in London, additional reporting by Kevin Buckland in Tokyo and Stella Qiu in Sydney; editing by Sonali Paul, Amanda Cooper and Mark Heinrich)