Bank shares tanked across the globe on Friday as fears of a recession swept through markets in the wake of U.S. President Donald Trump announcing the highest tariff walls in a century.
European banking stocks had tanked 10% by 1100 GMT and the financials sector was the biggest faller in the STOXX Europe 600.
In Asia, Japanese megabanks ended the week with the biggest losses since the financial crisis of 2008 in one of the markets' most unsettling signals so far about the consequences of Trump's trade war.
Banks, as barometers of growth, are seeing their shares hammered as the U.S. breaks with the free trade order that it built up over decades. Investors are bracing for falling spending, a sharp decline in loan demand and deal volumes to crater.
"Bank stock valuations tell us investors are leaning toward the bear case for banks becoming a reality," according to Raymond James, pointing to investor expectations for a recession in 2025.
U.S. banks also extended declines in premarket trade, after crumbling to their lowest in months on Thursday. JPMorgan Chase fell 4%. Wall Street powerhouses Goldman Sachs and Morgan Stanley fell 3% and 4%, respectively.
A universal 10% tariff on U.S. imports is set to take effect on April 5, followed by further levies on dozens of countries as Washington erects the steepest trade barriers in more than 100 years.
Mounting fears of retaliation, which Trump officials have warned could escalate the dispute further, have also led some to shorten their odds on a recession coming to pass.
China's finance ministry said on Friday it will impose additional tariffs of 34% on all U.S. goods from April 10.
The drop in shares is a sharp reversal for the banking sector, which a few months ago was riding high on post-election optimism. While the tariffs don't hit banks head-on, they may prompt companies to pause M&A plans and erode consumer sentiment, which can ultimately hit investment banking fees and slow loan demand.
Fitch Ratings' head of North American Banks Christopher Wolfe said that banks may have to start setting aside bigger provisions for potential loan defaults, especially if tariffs stay in place for a prolonged period.
Starting next week, U.S. banks will offer insights into their strategies for navigating the turmoil, with JPMorgan, Morgan Stanley, Wells Fargo and BNY set to kick-off the earnings season.
'THE WORLD HAS CHANGED'
European banks seeing heavy falls included Deutsche Bank, down 11.6%, and UniCredit and Societe Generale, down by similar amounts.
Japanese bank stocks logged their biggest weekly loss in at least 40 years, while investors dived into government bonds as they sought safety.
"The world has changed, and in few economies do these changes reverberate as strongly as in Japan," said Fred Neumann, chief Asia economist at HSBC in Hong Kong.
Shares in Japan's biggest bank by market value, Mitsubishi UFJ Financial Group, fell 8.5% on Friday for a weekly loss of 20% - the largest since 2003.
Mizuho Financial Group was down more than 22% for the week, the largest drop since 2008, while shares in Sumitomo Mitsui Financial Group were 20% lower for the week.
"It's a wholesale move out of banking stocks and I think this will continue," said Amir Anvarzadeh, Japan equity strategist at Asymmetric Investors.
Japan's TOPIX banks index, which touched a 19-year high only two weeks ago, is down 24% from that high. Its weekly drop of 20.2% is the biggest in LSEG data stretching back to 1983.
($1 = 146.0500 yen)
source: finance.yahoo.com
