European banks extended gains after the European Central Bank unexpectedly cut interest rates and said it will start buying securities to add liquidity and ease the flow of funding for the region’s economy.
Banco Comercial Portugues SA climbed as much as 8.1 percent, leading gains among the 47 members of the STOXX 600 Banks Index, and was up 7.5 percent to 11.34 cents as of 4:35 p.m. UniCredit SpA, Italy’s biggest bank, rose 4.7 percent to 6.37 euros and Intesa Sanpaolo SpA, the No. 2 lender in the country, increased 5.1 percent to 2.45 euros.
The European bank index rose as much as 2.7 percent, the most since Jan. 7. It is up 5 percent this year.
Banks rose as part of a surge in equities after the ECB cut its deposit and refinancing rates to new record lows and announced it will start buying securitized debt and covered bonds. In committing cash to the market for asset-backed securities, Draghi is honoring his pledge to help rekindle a market that can funnel loans to the real economy and ease funding conditions for banks.
“The central bank’s purchase of ABS will improve banks’ balance sheets,” said Carlo Alberto Carnevale Maffe, professor of business strategy at Milan’s Bocconi University. “Prices of those assets will increase while risk will diminish. It’s a direct impact on banks’ assets.”
Draghi said details of the ABS program will be announced after the October rate-setting meeting.
“It’s clear that the ECB sees credit not growing as a problem and is still favoring liquidity in the market,” said Javier Galan, fund manager at Renta 4 Banco SA, a Madrid-based financial services and brokerage firm. “It is not about how much it cuts rates but about the message it is sending.”