Europe's banks in freefall as fear stalks the markets

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The Independent Online

Fear gripped Europe's banks yesterday as shares in French and Italian lenders dived on concerns they would be crippled by the eurozone crisis.

Société Générale led French banks down as market rumours about its financial position sent its shares tumbling more than 20 per cent during the trading session. SocGen, France's second-biggest bank, was forced to issue a statement denying speculation that it was in trouble.

Shares in Unicredit and Intesa, two of Italy's biggest banks, were suspended because of volatile trading. Fears about Italy's sovereign-debt burden sent the banks down 9.4 per cent and 13.7 per cent respectively.

French banks were hit by rumours that France was about to follow the US and lose its top AAA credit rating. SocGen shares closed down almost 15 per cent and have nearly halved in the past four weeks. BNP Paribas, France's biggest bank, fell 9.5 per cent.

SocGen also suffered after a typographical error in a Reuters chart sparked concerns that the bank, a big bullion trader, was trying to raise cash by selling gold futures cheaply. Later, rumours swept the market that an unlisted French insurer was in financial difficulty and had sold its big holding of SocGen shares. SocGen last week revealed a slump in second-quarter profit as the bank was hit by its big exposure to Greece. The bank also admitted it was unlikely to meet its 2012 profit forecast.

A SocGen spokesman said there had been no change since the profit warning, adding: "SocGen categorically denies all the market rumours."

The eurozone crisis is in danger of spreading from peripheral countries such as Greece and Portugal to major economies such as Italy, Spain or even France. Fears about which banks might be hit by holdings of bonds issued by troubled countries have led to inter-bank lending costs soaring.

British banks were also casualties. Barclays dropped 8.7 per cent, followed by Standard Chartered and Royal Bank of Scotland, which both shed more than 7 per cent. Santander, Spain's biggest bank, fell 8.3 per cent.