ANOTHER worry has been added to the long list plaguing equity markets this year. Bank shares have been falling fast, particularly those in Europe, which in morning trading, were down 22% so far this year. The collapse of 2007 and 2008 was all about the banking sector. If European banks are in trouble, then comparisons with that period are bound to mount; earlier worries, notably the slowdown in Chinese growth and the fall in commodity prices, had more parallels with the Asian crisis of 1997-98.

A number of factors are hurting bank shares. First, the sluggish performance of European economies over several years means there are worries about bad debts on bank balance sheets; Heartwood Investment Management reckons that 16.7% of Italian bank loans are non-performing, against a European average of 5.6%. Italian banks have been amongst the hardest hit. More generally, however, the recent results season for Europe’s banks was disappointing with the CreditSights research team describing them…Continue reading

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