European and US bank stocks recoup some losses; the sector is preparing for a series of sanctions

The financial district in Frankfurt, Germany, March 18, 2019. REUTERS/Ralph Orlowski

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  • Details of EU sanctions still pending
  • Stocks recover some of Thursday’s steep falls
  • JP Morgan highlights key risk of slowing economic growth
  • London Stock Exchange suspends VTB Capital
  • German bank evacuates Ukrainian staff

FRANKFURT/LONDON, Feb 25 (Reuters) – European and U.S. bank stocks recouped some of the previous day’s heavy losses on Friday as the sector begins to tackle a series of sanctions unveiled this week in retaliation for the Russian invasion of Ukraine, with more due from European Union shortly.

The actions got off to a nervous start as missiles pounded the Ukrainian capital and President Volodymyr Zelenskiy pleaded with the international community to do more, saying the sanctions announced so far were not enough. Read more

After early losses, major European banks then edged higher, with a European banking sector index (.SX7P) up 3.7% by mid-afternoon, after falling 8% on Thursday. Major US banks were posting gains of up to 1.2% in their premarket deals.

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Shares of major US banks also rose in early trading, with JPMorgan Chase & Co (JPM.N), Goldman Sachs Group Inc (GS.N), Bank of America Corp (BAC.N), Citigroup Inc (CN) , Wells Fargo & Co and Morgan Stanley (MS.N) adding between 1.1% and 2.9% in early trading.

The S&P 500 financial index (.SPSY) rose 1.3% while the KBW Bank index (.BKX) rose 1.9%

Details of the next round of EU sanctions were still in the works, but the European Union is expected to freeze Russian assets in the bloc and block its banks’ access to European financial markets under what the policy chief EU Foreign Minister Josep Borrell described it as “the toughest set of sanctions we have ever implemented”. Read more

There is an agreement to freeze the European assets of Russian President Vladimir Putin and Foreign Minister Sergei Lavrov, an EU official has said. Read more

“This package includes financial sanctions, targeting 70% of the Russian banking market and major state-owned companies, including in the field of defence,” European Commission chief Ursula von der Leyen said on Twitter.

Behind the scenes, the bankers said they and their lawyers were scrambling to determine the impact of the sanctions.

“To be effective, regulations need to be clear and explicit,” the European Banking Federation said, adding that it stood ready to work with policymakers to make that happen.

Germany’s financial regulator, BaFin, said it was in close contact with the banks it supervises regarding risks related to the crisis and expected full compliance with sanctions.

In a sign that the sanctions were starting to weigh, the London Stock Exchange suspended VTB Capital’s membership. The company is owned by one of Russia’s largest banks and can no longer trade on the LSE. Read more

Elsewhere, insurance broker compliance officials are asking staff to stop using Russian insurers and find alternatives, said Ben Sheppard, senior research analyst at insurance investment adviser Argenta Private Capital.

DISAGREEMENT OVER SWIFT

In a report on Friday, JP Morgan analysts said the sanctions would have a limited impact on banks directly and the biggest issue was the impact on the economy.

“The main risk for European banks relates to potential GDP downgrades due to higher commodity prices and therefore potential delays in interest rate hike expectations,” the report said.

The prospect of higher interest rates had improved banks’ earnings outlook after years of ultra-low, negative rates that had eaten away at their profit margins.

Meanwhile, the banks were implementing emergency measures. Germany’s Solarisbank said it had evacuated its technology center in Kyiv, which it opened last year with dozens of employees.

“It’s sad to think that just a week ago I was in Kyiv, working and developing business. Now we have to rebuild our plans and adapt,” the Ukrainian head of state said on LinkedIn. bank, Dumitru Condrea.

On Thursday, the banks most exposed to Russia fell the most.

This included Austria’s Raiffeisen Bank International (RBIV.VI), which lost 23%, regaining 8.5% on Friday. Societe Generale (SOGN.PA), which lost 12% on Thursday, was up 3% on Friday.

Some investors had already reduced their exposure to Russia.

“We had our own view of picking companies that would most likely be hit by strong sanctions and that was an area where we were looking to reduce our exposure,” said Andrew Formica, managing director of Jupiter Fund Management (JUP. L ).

For European banks, the biggest concern was that governments would exclude Russia from the SWIFT international payment network, but so far this has not happened.

The bankers argued that cutting Russia off from the international payments network could seriously harm its economy and ordinary citizens, and create enormous complexity and compliance risks for the global banking industry.

As Britain pushes to bar Russia from SWIFT, French Finance Minister Bruno Le Maire said on Friday the option would only be used as a last resort. Read more

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Additional reporting by Frank Siebelt, Hakan Ersen, Huw Jones and Devik Jain; edited by Miranda Murray, Catherine Evans, Elaine Hardcastle and Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

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