Markets Shudder Despite ECB Virus Package
13 March 2020 - 2:46AM
Dow Jones News
By Margot Patrick, Patricia Kowsmann and Paul J. Davies
Markets found little solace in the European Central Bank's moves
to protect the economy from the impact of the coronavirus outbreak,
with European stocks falling 10%, adding to investor worries that
the selloff is creating paralysis in the world financial
system.
The ECB rolled out cheap loans for banks at an interest rate as
low as minus 0.75%, and temporarily stepped-up bond purchases,
including those of private companies.
ECB President Christine Lagarde suggested that the central bank
wouldn't act to support southern European government bonds if they
came under pressure.
"We are not here to close spreads, there are other tools and
other actors to deal with these issues," Ms Lagarde said. Instead
she urged governments to act to support growth.
But what it didn't do Thursday was to cut its key interest rate,
which investors had been expecting after rate cuts from the Federal
Reserve and other central banks over recent days.
"It's brutal," said Sebastien Galy, a senior macro strategist at
Nordea Asset Management. "If you don't get a more negative interest
rate by the ECB, by definition it's a disappointment."
In a sign of the dramatic market reaction to the ECB package,
yields on Italian government bonds soared to 1.73% from 1.26%.
Italy, at the epicenter of the crisis, has some of the region's
weakest banks, seen as most in need of help given the downturn in
the economy. Meanwhile, the euro slid more than 1% against the
dollar.
National stock indexed in France, Germany and Italy were all
down around 10%. Shares in European banks took the brunt of the
selling on the stock market, with the Stoxx Europe Banks Index down
more than 12% for the day, taking its fall over the year to date to
36%.
French banks with large oil sector exposures were down by double
digits after the ECB announcement, with BNP Paribas SA off 11% and
Natixis SA losing 14%. ING Groep NV, also heavily exposed to energy
companies, slumped more than 15%.
Deutsche Bank, considered one of Europe's most troubled lenders,
fell 14.2%.
Investors are increasingly concerned banks could deplete their
capital with large loan provisions from the first quarter onward,
as borrowers including airlines, oil companies and retailers are
sent into a tailspin from virus containment measures.
Banks with exposure to transport, retailers and energy have been
among the hardest hit since a stock market rout quickened on
Monday, and many analysts say central banks and governments will
have to do far more to stabilize the sector.
Despite the immediately negative market reaction, the steps
taken by the ECB were significant, analysts said. These include
allowing banks to temporarily lower capital and liquidity levels
below current requirements. These are moves that would have been
unthinkable just a couple of weeks ago for a regulator that has
repeatedly told lenders to raise them as a reaction to the last
financial crisis.
Write to Margot Patrick at margot.patrick@wsj.com, Patricia
Kowsmann at patricia.kowsmann@wsj.com and Paul J. Davies at
paul.davies@wsj.com
(END) Dow Jones Newswires
March 12, 2020 11:31 ET (15:31 GMT)
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