The value of eurozone banks have collapsed by a third since markets touched their peak at the end of January, data showed on Wednesday, as another quarter of disappointing profits at Deutsche Bank dragged the region's sector down. European banks shares, which have never reclaimed their pre-financial crisis prices, have been the worst performing sector so far in the monetary block this year, down 26.5 percent as investors shed assets seen as most vulnerable to political upheaval.
"The fall is not justified by a similar drop in earnings," commented Farhad Moshiri, an analyst covering European banks at Alphavalue, arguing that political risk had a stronger negative impact than sector results. Still, Deutsche's bleak results and revenue forecast on Wednesday, which sent shares down 5 percent for their worst day since end-May, deepened the sector-wide rout.
The Spring political crisis in Italy and the following on-going row with the European Commission about the country's populist government's budget took a heavy toll, particularly on Italian banks. The latters are heavily exposed to Italian sovereign debt, which has shed value since the country decided to raise spending and put an end to years of fiscal prudence.
Slowing economic growth on the continent and elusive monetary normalisation, with a first interest rate hike by the European Central Bank (ECB) still far away, also weighed on stock prices.
A long series of compliance fiascos, the latest being the money laundering scandal at Denmark's largest bank, Danske Bank, have also made investors mistrustful and weary of remaining skeletons in the banks' coffers. Attracted by their low valuations and growing dividend yields, a number of fund managers have placed bets on a revival of European banks but without lasting success so far.
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