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MW UPDATE: Credit Suisse, Deutsche Bank being booted from top index is another blow for banks

Aug 02, 2016 11:42:00 (ET)


By Sara Sjolin, MarketWatch

Both banks have lost about 50% in 2016

In another knock for embattled European banks, industry heavyweights Credit Suisse Group AG and Deutsche Bank AG are being dropped from the exclusive Stoxx 50 index next week following sharp slumps in their share prices this year.

Exchange operator Stoxx said late Monday the two banks will be kicked out of the index of Europe's 50 blue-chip companies on Aug. 8 due to the so-called "fast exit" rule. The rule states that if a company on the benchmark ranks 75 or below among companies considered for the index for two straight months, it will be removed. Usually changes to the index are only made once a year.

Shares of both Deutsche Bank (DBK.XE) (DBK.XE) and Credit Suisse (CSGN.EB) (CSGN.EB) sank to record lows in July after the U.K.'s Brexit vote sent shock waves through financial markets.

Banking shares across Europe were already swooning from negative interest rates at the European Central Bank and Swiss National Bank, which were eroding profits.

Both Credit Suisse and Deutsche Bank are down around 50% this year and have lost almost 90% since their all-time highs hit in 2007.

On Tuesday, the German lender lost 4.8%, while its Swiss counterpart slumped 6.2%.

Deutsche Bank dropped 1.8% in choppy trade on Monday, when investors got their first chance to react to the European Banking Authority's stress test results that came out last week (http://www.marketwatch.com/story/most-european-banks-pass-stress-test-2016-07-29-164853429). The test showed the bank would be among the harder hit financial firms during a hypothetical economic crisis, ranking it close to struggling Italian lender UniCredit SpA (UCG.MI). Swiss banks weren't included in the test.

However, many market participants dismissed the European stress-test results, suggesting they weren't severe enough.

"If a semi-ridiculous batch of stress-tests that weren't even graded on a pass/fail basis weren't enough, then I guess Stoxx Ltd.'s decision to toss Credit Suisse, and Deutsche Bank from the StoxxEurope 50 Index by next week was trigger enough [for a selloff]. European traders said 'sold!!' to European banking shares today in a big way," said Stephen Guilfoyle, chief market economist at Stuart Frankel & Co., in a Tuesday note.

The Stoxx Europe 600 Banks Index slumped 3.4%, sending it down 5.1% so far this week.

French engineering and construction company Vinci SA (DG.FR) and Dutch semiconductor-equipment maker ASML Holding NV (ASML.AE) will replace the two banks in the Stoxx 50 from the market open on Aug. 8.