European banks drop as investors digest Yellen comments

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European banks drop as investors digest Yellen comments

By Scott Kanowsky -- European banking stocks slipped on Thursday after U.S. Treasury Secretary Janet Yellen said lawmakers in the country are not considering plans to introduce blanket deposit insurance despite recent turmoil in the financial industry.

The Europe Stoxx Banks index, which includes some of the region's biggest banks, fell into the red. Germany's Commerzbank AG O.N. (ETR: CBKG ) and Dutch lender ING Groep NV (AS: INGA ), as well as Banco de Sabadell SA (BME: SABE ) and BBVA SA (BME: BBVA ) in Spain, all dropped by over 2%.

Weighing on sentiment around the sector was the statement from Yellen, which tempered some investor expectations over how much U.S. officials would intervene to secure uninsured deposits in beleaguered regional lenders. Traders had hoped that guarantees offered to depositors of collapsed Silicon Valley Bank could also be given to smaller banks.

Elsewhere, U.K. lender Barclays PLC (LON: BARC ) slipped marginally and peer Natwest Group PLC (LON: NWG ) rose, as investors awaited a fresh interest rate decision from the Bank of England.

In a note to clients late on Wednesday, analysts at Citi downgraded their outlook for European banks, arguing that "mounting headwinds" against these businesses provide "reason for greater caution."

"We had already called for [b]anks’ tactical downside after the failure of SVB," the analysts said. "Going forward, central banks will likely adopt a less hawkish approach and any additional hikes will probably increase downside risks on economic activity."

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