Banking stocks on course for another good day as fears of global crisis recede: Most in green… apart from UBS

European banking stocks were on course for another strong morning on Wednesday after a rollercoaster couple of days for the sector induced by Credit Suisse’s buy-out by UBS. 

Most European banks were in the green on Wednesday: SocGen was up 2.5 per cent, BNP Paribas 1.5 per cent, Deutsche Bank 1.2 per cent and Santander 2.4 per cent.

The wider European Stoxx 600 banking index was up 2.0 per cent. 

UBS, which was down 1.5 per cent, was the exception, although it remains up more than nine per cent over the past five days. 

The Swiss banking giant announced plans to buy back €2.75bn in debt issued only a week before as it attempts to consolidate investor confidence.

Analysts at RBC Wealth Management were confident that recent turmoil in the banking sector was unlikely to lead to another financial crisis. 

David Storm, chief investment officer for RBC Wealth Management said “the biggest pressure point or danger is market participants conflating these events into a 2008 crisis narrative, when we do not view it as that at all.”

As markets in Europe stabilise, increasing focus has been directed to the fate of First Republic Bank. Its shares rallied nearly 30 per cent yesterday after Janet Yellen signalled that the US government could backstop all deposits at struggling lenders. 

However, concerns still remain about the stability of smaller US banks while there are fears that rising interest rates will continue to pile pressure onto the struggling sector.

“Concerns about the future of First Republic Bank have been assuaged by indications the US Treasury would step in to backstop deposits, Hargreaves Lansdown’s Susannah Streeter commented. 

“But as we’ve seen sentiment can turn very quickly and investors will be hanging on every word from Fed chair Jerome Powell for indications about when a pause (in rate hikes) will come.”

The Fed is set to announce its latest interest rate decision today with markets expecting the central bank to raise rates by 25 basis points. 

But there are fears that increasing borrowing costs as well as instability in the banking sector will knock lending and tip the economy into recession. 

“The risk is that a hike now could end up pushing inflation below target further down the line,” Streeter said, although she noted this was more likely to be a “background concern…particularly as action to stem contagion in the banking sector appears to be working”.