Bank Slump Triggers Worst Week in Three Months for Europe Stocks

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  • Italian and Portuguese shares lead slides in the region
  • Automakers and energy producers also among biggest decliners

European Stocks Fall for Fourth Day in Five

A tumble in Deutsche Bank AG spread to the industry, deepening a selloff that dragged European equities to their biggest weekly plunges since before the U.K. secession vote.

Shares of the German lender sank 8.5 percent, the most since the aftermath of the British referendum, after rebuffing the $14 billion claim from the U.S. Justice Department to settle a probe. Royal Bank of Scotland Group Plc and Credit Suisse Group AG also fell more than 4 percent, along with some Italian and Portuguese firms. That highlighted the vulnerability of the recent rebound, with a gauge tracking the region’s lenders down 5.6 percent this week, erasing about a third of its gain from the past two months.

The Stoxx Europe 600 Index fell 0.7 percent to a six-week low, down for a sixth time in seven days. Concerns about lenders and worries that the region’s central bank may balk at adding stimulus have sent the gauge to its first back-to-back declines since June and down 2.2 percent in the past five days. A record streak of withdrawals from the region’s funds continued into a 32nd week, a Bank of America Corp. report showed.

“The Deutsche Bank news kind of rattled markets,” said Jasper Lawler, an analyst at CMC Markets in London. “It just goes to show that we’re still dealing with the same old headwinds: this low-interest rate environment, which will go on for a while, and the regulatory scrutiny.”

While European Central Bank President Mario Draghi downplayed the need for more aid last week, his unprecedented stimulus has raised concerns about lenders’ profitability. At the same time, the Basel Committee on Banking Supervision faces a potential backlash as it works on revised rules for the industry. Some European regulators have asked for the proposed changes to be scaled back and slowed down, people familiar with the matter said. The industry group has lost more than any other sector this year, tumbling 24 percent.

Speculation on the path of Federal Reserve rate policy has also weighed on the market in recent days as volatility and volume returned. On Friday, the number of Stoxx 600 shares changing hands was more than double the 30-day average, partly because of increased trading as some futures and options on stocks and indexes expired. A measure tracking euro-area equity volatility jumped 10 percent this week, the most in a month.

Watch Next: Deutsche Adds Pressure to Europe's Banking Woes

Shares of Italy and Portugal were the worst performers in western Europe, with Banca Monte dei Paschi di Siena SpA and Banco Comercial Portugues SA falling to fresh records. The Deutsche Bank plunge dragged Germany’s DAX Index down 1.5 percent, the most since Aug. 2. The measure also suffered from sliding automakers, with BMW AG and Volkswagen AG falling more than 2.5 percent. Energy producers resumed their slides as oil declined. This week, only drugmakers -- deemed safer in times of economic turmoil -- advanced. Shire Plc and AstraZeneca Plc gained at least 2 percent on Friday.

Among other stocks moving on corporate news, Fiat Chrysler Automobiles NV lost 2.1 percent after saying it’s recalling about 1.4 million cars and trucks in the U.S. British private-equity firm SVG Capital Plc rose 3.2 percent after saying an unsolicited bid by HarbourVest Partners LLC undervalues the firm and that is has other offers.