Greek default and French bank concerns trigger sharp fall in share prices

Investors continued to flee risk asset classes such as stocks on Monday after growing concerns that the political divide in Europe is threatening an escalation in the Eurozone sovereign debt crisis, whilst Greece neared a potential default should the EU, ECB and IMF (the Troika) fail to agree with the newly announced austerity measures announced by Greek PM Papandreou and sanction the next tranche of bailout funds.

Investors are running out of patience with European governance to get their act together, unite and announce credible actions to curtail the sovereign debt crisis from spreading. Until that happens, investors are finding it hard to justify holding risk for any long period of time.

The result is the DAX fell 2.3% whilst the French CAC, weighed heavily by a terrible day’s performance for its banks, lost 3.7%. The FTSE 100 fell over 1% on the day to mark a bad start to the week for European equities. In truth, the performance of European key indices had been much worse earlier in the day but some small buying back into stocks from their lows helped to spark a small rally into the close and help indices retrace heavier losses.

The G7 meeting at the weekend did nothing of note, marking another wasted opportunity to address key market concerns, whilst former ECB member Juergen Starks’ resignation from the ECB and the stormy relationship between Greece and the Troika is sending a sign of heated divide amongst the very people the market is looking towards to sort out the sovereign debt crisis.

We have seen a fresh selling wave hitting French banks today on key concerns over exposure to sovereign debt, whilst speculation of a potential move to part nationalise some of the key French banks have also deteriorated near term sentiment. An expected downgrade to come from Moody’s for Societe Generale, BNP Paribas and Credit Agricole has hardly helped either, as the ratings agency nears its three-month review of ratings for the biggest French banks and their credit worthiness in the midst of the sovereign crisis.

All three aforementioned French banks were heavy fallers in European trade, losing over 10%, with Soc Gen shares hitting a new 19-year low in the process and the banks announcement to sell assets failing to calm shareholder fears of a potential part-nationalisation.

London trade actually fared somewhat better than its European peers today, partly due to an ‘it could have been worse’ attitude towards the recent Independent Commission on Banking (ICB) reform proposals. The measures announced were already mostly well expected by investors whilst the recommended deadline of 2019 is also being digested well.

Shares in Lloyds Banking Group and Royal Bank of Scotland actually switched between small gains and losses throughout the day whilst its rival European banks fell sharply. Shares in Barclays, which is likely to be most impacted by the new suggested measures, fell a meagre 1%.”