Global bank stocks fell on Monday as depressed U.S. Treasury yields highlighted growing investor worries about economic damage from Russia's invasion of Ukraine and more financial firms cut ties with Russia.
Lenders and investors with links to Russia have been cutting ties to the country. These moves come as Western sanctions have been brought to bear, while others have sought to reassure their shareholders that the direct impact could be contained.
Financial Giants Pile On
Deloitte and EY said on Monday they would sever links with Russia, mirroring moves by fellow Big Four accounting and consultancy firms KPMG and PwC. These companies audit blue-chip company accounts and their work is often key to businesses obtaining international investor backing.
European asset managers Carmignac and Fidelity International said they would not buy Russian securities.
S&P 500 banks were down 3.8% while the broader S&P 500 financial sector was off 2.7% as the yield curve -- the difference between longer and shorter dated U.S. Treasuries -- narrowed, suggesting pressure on U.S. banks' profitability. The bank index has fallen more than 11% since the conflict escalated on Feb. 24.
Another consideration for bank investors could be the dilemma over whether to keep businesses there. Closing shop could be an arduous and costly process, according to banking sources and experts.
Shares in U.S. payment companies were lower on Monday with American Express Co. down 6.0% after it said on Sunday it was suspending all operations in Russia and Belarus, joining Visa Inc. and Mastercard Inc. in similar announcements the previous day, as well as payments company PayPal Holdings Inc.
Investor concerns were exacerbated by signs of rising prices at the gasoline pump over the weekend. The United States and Europe said they were mulling a Russian oil import ban, which could further stoke energy prices and inflation and dampen any recovery.
"You're starting to hear more of the drumbeat from investors about the possibility of a recession due to inflationary conditions," said R.J. Grant, head of trading at Keefe, Bruyette & Woods in New York.
Macro Uncertainty Looming Large
"The market needs some sort of near-term resolution with the Russia-Ukraine conflict because there is too much uncertainty in the macro picture for folks to get comfortable putting money to work."
However, strategists at JPMorgan were advising clients to pick up some beaten-down Russian assets on the cheap, touting the bonds of Russian companies that are not on the sanctions list and have significant international operations as the best way to profit from distressed pricing.
Russian bond prices have fallen to record lows since Moscow invaded Ukraine as investors fret over their ability to pay as a result of coordinated Western sanctions.
Russia calls its actions in Ukraine a "special operation."
The United States has led the sanctions to limit the flow of Western money and damage Russia's economy, while Ukraine has called for the boycott of Russian energy exports.
Russian banks targeted by sanctions have been scrambling to adapt. VTB's consumer digital bank in Europe has turned off its phone lines due to high call volumes, according to a notice on its website on Monday.
Regulators are preparing for a possible closure of the European arm of VTB, Reuters reported last week, while German regulator BaFin already banned it from taking on new custom,
One of France's major banks, Credit Agricole, became the latest to detail its exposure to Russia and Ukraine, saying this stood at around 6.4 billion euros ($6.95 billion) in total across on and off balance sheet exposures.
'Good Quality' Russian Expsoure: Credit Agricole
The lender said the exposures were of a "limited size and of good quality" and were being closely monitored, adding they would not impact distribution of its 2021 dividend.
Swiss banking giant UBS also detailed its direct exposure to Russia in its annual report, putting this at $634 million at the end of 2021. The bank said its direct exposure was limited and had been reduced since, though this could be affected by sanctions.
The euro zone banking share index closed down 4.1%after dropping by as much as 9.6% to a 13-month low earlier on Monday, before paring losses.
Lenders with operations in Russia - including Austria's Raiffeisen, Italy's UniCredit and France's Societe Generale - have been particularly affected, and all three fell by double-digit percentages early on Monday. The trio recovered some ground later and were all down around 3-4% in early afternoon European trading. ($1 = 0.9204 euro)
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