The fear of a looming recession in Europe and a bungled bond swap undercut Tuesday yesterday resulting in one of the biggest declines in bank stock prices this year on Tuesday. A string of bad news sent investors into a selling frenzy – with bank stocks topping the ‘get-rid-of’ list.
European bank shares understandably saw the sharpest declines, although major U.S. banks were not spared. Barclays (NYSE:BCS) ended up as the biggest loser, shedding just under 8% of its stock value. Deutsche Bank (NYSE:DB), Credit Suisse (NYSE:CS) and RBS (NYSE:RBS) are other banks which have to contend with a more-than-6% decline in their share prices over trading throughout the day. Morgan Stanley (NYSE:MS) emerged as the worst performer among U.S. bank stocks – losing more than 5%. The KBW Bank Index tanked nearly 3%, with all underlying components sinking by at least 1%.
Investor confidence was already shaken at the by Chinese premier Wen Jiabao’s announcement that China expects growth of just 7.5% this year. The world’s second largest economy was believed to be capable of holding out against the recent slowdown – a theory proven false.
Then, the European Union (EU) released the region’s economic performance figures for Q4 2011, and the data shows an unexpected decline in GDP, exports and consumer spending. These alarming signs led investors to conclude that the European region could very well be staring at an imminent recession – something that does not forebode well for the global economy.
And to make matters worse, doubts were raised about Greece’s ability to complete its debt restructuring plan. The troubled country gave private investors till Thursday to sign-up for the critical bond swap plan. Response from creditors has not been very good – an expected situation considering the fact that they would lose as much of three-quarters of their original investments. If Greece does not garner support from a majority of the creditors, the second bailout package for it will be blocked – and the country’s default will become inevitable.