Market Overview

European Banks Rise As Markets Anticipate ECB Easing

Related CS
Jim Cramer Gives His Opinion On Oracle, Credit Suisse And Nutanix
Jamie Dimon's 'Big Bet' On His Own Company Paid Off
Wall Street Breakfast: Apple Earnings Take Center Stage (Seeking Alpha)
29 Years Later, The Market Looks Nothing Like It Did October 19, 1987
Benzinga's Top Downgrades
Barclays: Too Cheap To Ignore (Seeking Alpha)

Shares of European banks rose on expectations that the European Central Bank may be preparing to cut interest rates again.

Credit Suisse Group AG (ADR) (NYSE: CS) was up 3.6 percent, Banco Santander, S.A. (ADR) (NYSE: SAN) advanced 2.6 percent and HSBC Holdings plc (ADR) (NYSE: HSBC) was up 2.3 percent.

"We are monitoring it on a regular basis and we are studying carefully the schemes used in other jurisdictions to mitigate possible adverse consequences for the bank lending channel. But I also think we need to qualify the narrative that banks' challenges flow largely from our monetary policy," ECB Executive Board member Benoît Coeuré said in a speech. Coeure is also the governor of the Bank of France.

A concern has built up that, as central banks lower interest rates into negative territory, the impact of monetary policy on banks is becoming increasingly adverse. That is because bank lending rates fall linearly but their funding costs are non-linear – as interest rates on retail deposits are sticky – which puts a squeeze on net interest margins.

However, Coeure pointed out that many banks have been able to more than offset declining interest revenues with higher lending volumes, lower interest expenses, lower risk provisioning and capital gains. Last year, for example, euro area banks' aggregate net interest income increased, especially as crisis-hit banks refinanced expiring high-yield liabilities.

Posted-In: Eurozone Intraday Update Markets Movers


Related Articles (CS + HSBC)

View Comments and Join the Discussion!