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European shares tumble as Turkish turmoil hits banks

Stock MarketsAug 10, 2018 04:50AM ET
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© Reuters. FILE PHOTO: A money changer counts Turkish lira bills at an currency exchange office in central Istanbul, Turkey

By Danilo Masoni

MILAN (Reuters) - European shares fell on Friday as worries over a dramatic fall in the Turkish lira jolted financial markets, with banks such as Spain's BBVA and Italy's UniCredit falling on worries over their exposure to the country.

The pan-European STOXX 600 (STOXX) index fell 0.8 percent to a one-week low, as investors fretted about the possible political and economic repercussions of the Turkish crisis. The index was down 0.4 percent on the week.

The Turkish lira fell more than 10 percent to a record low, as concerns over a widening rift with the United States persisted after a Turkish delegation returned from talks in Washington with no apparent solutions.

"As the talks ... have broken down for the time-being, no relief is to be expected," BayernLB analyst Norbert Wuthe said.

"At the same time, the new U.S. sanctions against Russia have unleashed concern in the German economy," he added.

Germany's exporter-heavy DAX (GDAXI) index fell 1.2 percent, underperforming the broader market.

Most sectors were trading in negative territory.

Banks were among the biggest fallers after the Financial Times reported that the European Central Bank is concerned about the exposure of some of the euro area's biggest lenders to Turkey — chiefly BBVA, UniCredit and BNP Paribas - in light of the currency fall.

Shares in France's BNP Paribas (PA:BNPP), Italy's UniCredit (MI:CRDI) and Spain's BBVA (MC:BBVA) fell by around 3 percent.

According to Jefferies analysts, Turkey contributed 14 percent to BBVA's first-half group profits and 9 percent to UniCredit's consolidated profit, although their capital exposure is limited. Both banks have said a 10 percent fall in the Lira could shave 2 basis points off their capital adequacy ratio.

The broader impact on the European economy is also seen as limited. Berenberg economist Carsten Hesse estimates that a fall of eurozone exports to Turkey of 20 percent would subtract no more than 0.1 percentage point from economic growth.

"The eurozone banking exposure seems too small to cause a significant eurozone crisis," he said.

"But even if we are wrong and a potential meltdown of the Turkish banking sector would cause serious trouble for some eurozone banks, bank supervisors would have sufficient tools at their disposal to contain the damage."

Elsewhere, a profit warning from K+S (DE:SDFGn) sent shares in the German potash miner tumbling 8.8 percent to the bottom of the STOXX index.

Shares in London-listed Evraz (L:EVRE) fell 6.9 percent as shares of Russian metal and mining companies fell after a report that Russia is considering raising more revenue from the sector.

European shares tumble as Turkish turmoil hits banks
 

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