Mounting concerns over the potential fallout of Europe’s debt crisis and the prospect of squeezed profits from low interest rates are slamming the shares of the world’s banks.
Not only are there fears of the potential impact of the debt troubles, but also the new reality of at least two more years of low rates in the United States, which will further pressure thinning lending margins. Investors are looking ahead to 2012, when a slowing economy is expected to take a deep toll on profits in the financial sector.
As the debt woes in the 17-member euro zone spread beyond just the smaller countries, some of the world’s major banks have tried to calm concerns about contagion by emphasizing how much better capitalized they are today as compared with the crisis of three years ago. But investors have instead focused on weak economic readings in the United States and Europe.
“The markets are responding the way the are because of legitimate concerns over the profit outlook for the [sector], which to begin with wasn’t that stellar,” Canadian Imperial Bank of Commerce analyst Robert Sedran said Wednesday as banks stocks in Europe, the United States and Canada fell.
“The European debt crisis isn’t particularly new. The U.S. debt crisis isn’t particularly new. But if it’s against a backdrop of soft economic growth, it becomes a lot more concerning.”
The Globe
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