Bank shares slide as Brexit turmoil hits world stocks

Tuesday, 28 June 2016 00:10 - - {{hitsCtrl.values.hits}}

LONDON (Reuters): World stocks tumbled and European bank shares were on track for their biggest ever two-day fall on Monday as the political and economic fallout of Britain’s shock vote to leave the European Union drove sterling to a fresh 31-year low against the dollar.

Faced with a second day of turmoil after Thursday’s referendum, which most in markets had thought would deliver a vote in favour of staying in the EU, investors sought safe havens such as the yen, gold and core government debt.

But moves were not as extreme as on Friday when stocks fell by their most in almost five years.

British finance minister George Osborne sought to reassure markets, saying the world’s fifth-largest economy was strong enough to cope with the Brexit-inspired volatility, but the positive impact on sterling was only fleeting.

“This Brexit decision has taken the markets by total surprise. I would remain on the sidelines - no reason to step in yet,” said Hampstead Capital hedge fund manager Lex Van Dam.

Markets bet on a further cut in Bank of England interest rates, almost fully pricing in a 25 basis point cut by the end of the year in another blow to sterling and to banks already facing reduced earnings as a result of Britain leaving the EU.

An index of European bank shares fell 7.3%, taking losses in the last two trading days to around 20%. Royal Bank of Scotland shares fell 24% while Barclays shed 18%.

Italian banks also suffered. UniCredit fell 7.4%. The government was looking at options to help its banks and prevent further share price falls.

The pan-European FTSEurofirst 300 stocks index, which fell 7% on Friday in its biggest plunge in nearly eight years, lost a further 2.5% on Monday.

Britain’s FTSE 100 index ebbed a further 1.5% on Monday and Germany’s DAX lost 1.8%.

Spain’s IBEX index initially rose after acting Prime Minister Mariano Rajoy’s People’s Party fared better than expected in weekend elections but the gains melted away and the index was last down a modest 0.5%.

World stocks measured by MSCI hit their lowest level since March. U.S. index futures were down 0.6%, indicating Wall Street would open lower.