Deutsche Bank and Credit Suisse booted from top stock market index
The bad news just keeps on coming for the naughty children of the European banking sector.
To top off what has been one of the finest examples of a corporate annus horribilis, both Deutsche Bank and Credit Suisse are to be kicked out of the Eurostoxx 50 after their market cap has shrunk to record lows. The Eurostoxx 50, which is run by German exchange Deutsche Boerse is the collection of continental Europe's most valuable companies and includes the likes of Santander, BMW, L'Oreal, Orange and Volkswagen.
As of next Monday, however, the pin-ups for the woes facing European lenders, will no longer be able to call it home.
Read more: Banking shares tanking for second straight day
In line with so-called "fast-exit" rules, the banking baddies have been booted out of the index before the typical quarterly reviews because their performance has been so bad. This rule means that if a company falls out of the top 75 largest in Europe, as measured by market cap, in two consecutive months they are dropped from the Eurostoxx 50.
In June and July both Credit Suisse and Deutsche Bank suffered that fate. Their places at the top-table of European firms will be taken by French construction firm Vinci and Dutch semiconductor supplier ASML Holding.
Deutsche Bank slipped back yet another 3.1 per cent this morning on the news while Credit Suisse was down five per cent.
The demotion was pencilled in even before the results of last week's European Banking Authority (EBA) stress tests raised yet more concerns about the capital position of Deutsche Bank. Switzerland-based Credit Suisse were not included in the EU-wide tests published last Friday.
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"Two giants of the banking industry falling out of the Euro Stoxx 50 is a real fall from grace," Jasper Lawler of CMC Markets told City PM.
"But the effect is likely more symbolic than technical," he added. "The index is well-watched, but it’s one of many Europe-wide funds as opposed to a central benchmark like the FTSE 100. The tracker funds selling the shares will have a negative impact on the share price but the larger effect of pension and investment funds using components of the index to benchmark performance won’t be there."
Laith Khalaf of stockbrokers Hargreaves Lansdown, however, said the demotion could have a material impact on the banks. "It’s not just a question of pride, the removal from major indices reduces visibility and inhibits investment from passive investment funds. It’s not the end of the world and European banks probably have bigger problems to attend to right now, but it is a sign of the decline of the banking sector in recent times."
A snapshot: Deutsche Bank's annus horribilis
July: American John Cryan takes over the reins as CEO at Deutsche Bank
August 2015: Shares look relatively healthy, trading at €31 and the prospect of interest rate rises in both the US and the UK are on the cards
September 2015 : Reports suggest Deutsche Bank will withdraw from Russia and announce 23,000 lay-offs, equivalent to one-quarter of its workforce
October 2015: Dividend scrapped, 10 countries quit, at least 15,000 jobs lost at Deutsche Bank shocks the markets with a €6bn loss for the third quarter. Stock price hits €25.
November 2015: Fined more than $250m by US regulators for violating sanctions
December 2015: US Federal Reserve hikes interest rates – a rare piece of good news for the banking sector – as Deutsche Bank eases back from China
January 2016: Full-year losses reported at €6.8bn for 2015. Shares slump to lowest ever level of around €13.
February 2016: Turmoil on the global markets hits banks worst than most as shares plumb new record lows.
March 2016: European Central Bank (ECB) announces extension of monetary stimulus as end to negative interest rates stretches further into the distance and stock market rout continues
April 2016: Germany lender reports the most challenging quarter in "several decades" as revenues dropped 22 per cent and profits were down 58 per cent. Shares recover to around €16.
May 2016: Shareholder rebellion at Deutsche Bank AGM as more than half of investors reject the bank's remuneration plans in a non-binding vote.
June 2016: Deutsche Bank fails the US Federal Reserve's stress test
July 2016: Pre-tax profits fall 67 per cent in the first half of the year and come it at just £17m after tax. EBA stress tests reveal further weakness at the bank, but do not issue a 'pass' or 'fail' rating.
August 2016: Kicked out of the Eurostoxx 500 as share price languishes at all-time low of €11.40.