European bank stocks suffered their worst month on record in March with a 30% tumble and US banks had their biggest fall since the 2008-09 financial crisis as fears grew the coronavirus will cause deep recession and a jump in losses from bad loans.
The Stoxx Europe 600 banking index fell 29.5% in March to close on Tuesday at 87.8 points. That was its biggest monthly fall on record, based on Eikon data dating back to 1991, eclipsing its previous worst month in October 2008, when it fell 24%.
The DJ US Banks index fell 27% in March to close at 305 points. That was its steepest fall since January 2009, when it dropped 34%.
The US bank index tumbled 41% in the first quarter, eclipsing January-March 2009 as its worst quarter for at least 20 years, based on Eikon data. The European bank index is down 39% in the first three months of the year, its biggest drop since the fourth quarter of 2008, when it fell 43%.
Banks have been hit by fears the coronavirus pandemic will cause a long, deep recession, which will see losses from bad loans soar and bank revenues and margins decline.
But there are a number of uncertainties - about the duration and impact of lockdown and social distancing; how quickly and how well economies recover from an expected GDP slump in Q2; and to what degree monetary policy and fiscal stimulus will cushion the impact.
"Despite all of these (policy) measures, the outlook for the sector has, in line with the economy overall, darkened substantially," Goldman Sachs banking analyst Jernej Omahen said.
Goldman analysts this week cut their forecast for European banks' net income by €120bn, or 27%, over the next four years. It had already cut the forecast by €30bn three weeks ago. The latest reduction is front-loaded, with €55bn of the lost income expected in 2020. The analysts predict average return on equity for European banks this year will fall to 3%, and only recover to 6%-9% for 2021-2023.
In a separate note, Goldman analysts estimated US banks could face provisions in 2020 of US$190bn, representing 3.8% of loans - compared with just 0.6% currently and 3.4% in the 2008 crisis. That should be reduced by the multiple US support measures, however, and the analysts estimated US banks' average CET1 ratio will fall from 10.9% to 9.2%, still about minimum requirements, and rebuild to 10.2% in 2022.
Analysts said it is the speed and volatility of the drop in bank shares and global equity markets that made March stand out by historical standards.
In 2008-09, many banks had their worst months at different times, partly due to the timing of national bailouts and investors' perceptions of capital and liquidity strength. That resulted in a slump that lasted for many months.
The worst performing major banks last month included Dutch lender ING, whose shares tumbled 45%, their worst month since October 2008 when they lost more than half their value. ING shares lost 55% in the first quarter.
Shares in France's Societe Generale fell 40% last month, their steepest monthly fall in the past 20 years. Barclays dropped 37% last month, not as steep as its 45% tumble in October 2008.
In the US, JP Morgan shares fell 22% in March, their biggest drop since May 2012. They lost 35% in the first three months, eclipsing a 33% drop in Q4 2008 for their biggest quarterly drop since Q3 2002, Eikon data show.
Citigroup stock lost 34% last month and 47% in the first quarter, although its shares had far steeper falls on several months in 2008-09, including a 58% drop in February 2009.
Banks in Asia were also hit hard in March, although many were already on the slide. Shares in Japan's Mitsubishi UFJ Financial Group fell 24% in March and are down 32% this year, while Nomura lost 17% in March and 44% in the first quarter. Australia and New Zealand Banking Group fell 32% in March.