European Rescue Plan Lifts Investor Sentiment and Bank Stocks

November 29th, 2011 by Trefis Team
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Shares of all major banks are on their way to recovering from the declines they witnessed last week with draft reports of the plan being worked on by leaders of the Eurozone nations representing a light at the end of the tunnel for disillusioned investors. [1] European banks led yesterday’s rally in banking stocks with shares of Deutsche Bank (NYSE:DB) and Barclays (NYSE:BCS) gaining more than 8%, followed by a 7% rise in Credit Suisse’s (NYSE:CS) shares. UBS (NYSE:UBS) and RBS (NYSE:RBS) each saw their share prices up 6%. Interestingly, Citigroup (NYSE:C) emerged as the biggest gainer among U.S. banks – despite news that the bank’s $285 settlement with the SEC has been rejected by a federal court.

See our full analysis for Deutsche Bank | Barclays | Credit Suisse

European banks have seen nearly all developments in the Eurozone, no matter how small, having a large impact on their stocks the in the past few weeks. Only last week, their shares nosedived over growing concerns that the debt situation in the region could be spreading to France (See European Banks Hit the Most as Shares Continue Freefall).

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Leaders of France and Germany, seen as the strongest economies in the troubled region, pressed for immediate action by other member nations by committing to stronger internal economic controls instead of waiting for changes to be signed through external treaties. While the sense of urgency commanded by this message did a lot of good for investor sentiment, stocks also gained significantly from the fact that the draft report outlining the way forward for the European bailout fund suggests that as much as 30% of sovereign funds in the region will be insured.

Banks on our side of the Atlantic also did quite well over trading yesterday, with most U.S. bank shares seeing gains of at least 2%.

In the markets today, investors will likely be watching Deutsche Bank’s ticker very closely following reports that the largest German bank is likely to lend out considerably less money this year compared to last. This expectation is based on the fact that Deutsche Bank and other German competitors have borrowed less than half of what they borrowed last year – which could leave them cash-strapped when trying to hand out more loans.

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Notes:
  1. European Stocks Surge as Leaders Boost Efforts to Contain Crisis, Bloomberg, Nov 28 2011 [↩]