Bank shares extended the gains they posted last Thursday with another strong performance on Friday on the back of improving investor sentiments. After ECB chairman Mario Draghi gave stock markets around the world a boost on Thursday with his statement that the Eurozone’s policy-making bank will do everything needed to preserve the euro, investors cheered a similar resolve voiced by German Chancellor Angela Merkel and French President François Hollande on Friday. A lighter-than-expected slowdown in the U.S. economy also helped share prices up.
European banks, understandably, gained the most on Friday. Barclays (NYSE:BCS), which reported strong earnings numbers for Q2 2012 earlier that day, gained the most among all banks with its shares jumping up almost 9%. Shares of Credit Suisse (NYSE:CS) and Deutsche Bank (NYSE:DB) gained around 7% each, followed by a 5% increase in value for the shares of RBS (NYSE:RBS). All U.S. banks also gained moderately, with the KBW Bank index ending the day 1.5% higher.
Investors pressed the panic button at the beginning of last week when a string of failing Spanish regional governments led them to believe that the troubled Eurozone nation will likely end up asking for a full bailout soon. The repercussions of a failure in the large Spanish economy on the rest of Europe, and consequently on other economies across the globe, triggered a sell-off in bank shares. Weakness in Italy as presented by rising yield figures for its debt was another major source of concern.
However, confidence was restored to a large extent later in the week by statements from the ECB chair as well as German and French premiers, along with whispers of a debt repurchase plan being put together by the ECB, ESM and EFSF. Spanish and Italian yield figures responded almost immediately with considerable declines.
Better economic reports here at home also helped, when the latest data revealed that the U.S. economy grew by 1.5% (annualized) over the second quarter of the year. While this was not as good as the 2% annualized growth in Q1, this turned out to be a positive piece of news as economists had predicted the country’s growth to be slower for the difficult quarter.