As Turkey’s crisis mounts, contagion jitters hit global banks
Turkey ’s crisis is quickly reverberating through global banks, cutting stock prices for lenders with even little to no direct exposure, as investors worry about the unknown paths that contagion could take through the financial system.
The banks were caught up as stocks sold off around the world, with U.S. equities erasing what would’ve been a sixth weekly gain as Turkey’s economic crisis deepened.
The S&P 500 Index slumped in thin trading, zapping gains that had taken it within striking distance of an all-time high. European and emerging-market equities bore the brunt of selling, with losses of more than 1 per cent after the U.S. escalated a diplomatic row that tipped Turkey ’s economy deeper into crisis.
Canada’s main stock index also closed down Friday as most sectors slipped amid concerns that Turkey’s economic crisis could hit global markets.
The Toronto Stock Exchange’s S&P/TSX composite index closed down 90.47 points at 16,326.51 as sectors outside of information technology and energy dropped.
In New York, the Dow Jones industrial average ended down 196.09 points at 25,313.14. The S&P 500 index closed down 20.30 points at 2,833.28 and the Nasdaq composite index was down 52.67 points at 7,839.11.
For the global banking sector, the main concern is that European lenders, which have been looking to emerging markets as rich sources of growth, may get squeezed by turmoil breaking out in both Turkey and Russia, as the U.S. ratchets up sanctions. Their weakening currencies and the mounting potential for loan defaults there hammered shares of lenders including Spain’s Banco Bilbao Vizcaya Argentaria SA, Italy’s UniCredit SpA and Dutchbased ING Groep NV.
Yet even U.S. firms that have disclosed relatively little exposure to Turkey fell as that country’s crisis escalated Friday, with Citigroup Inc. down the most since May. The moves reflect how sensitive investors remain to risks in a sector which lost billions in Greece and has yet to fully restore profitability after the 2008 financial crisis.
“It was a classic risk-off move,” Quincy Krosby, chief market strategist at Prudential Financial in New Jersey, told Reuters. “You worry about the collateral damage. You worry about the effects on Europe. You have banks losing because the 10-year U.S. Treasury (yield) came down.”
Turkey entered a full-blown financial meltdown on Friday, after President Recep Tayyip Erdogan declared his refusal to bow to U.S. political demands and market pressures.