Why a selloff in European banks is ominous

The region’s banking gauge, the Stoxx Europe 600 Banks Index FX7, -3.97% has logged six straight weeks of declines, its longest weekly losing stretch since 2008, when banks booked 10 weeks of losses, beginning in May, according to FactSet data. And this week, so far, looks set to stretch that run to seven weeks of losses.


“The current environment for European banks is very, very bad. Over a full business cycle, I think it’s very questionable whether banks on average are able to cover their cost of equity. And as a result that makes it an unattractive investment for long-term investors,” warned Peter Garnry, head of equity strategy at Saxo Bank.


The doom-and-gloom outlook for banks comes as the stock market has had an ominous start to the year.


East or west, investors ran for the exit in a market marred by panic over tumbling oil prices CLH6, -4.08%  and signs of sluggishness in China. But for Europe’s banking sector, the new year has started even worse, sending the bank index down 27% year-to-date, compared with 15% for the broader Stoxx Europe 600 index SXXP, -1.58%


Read More: Why a selloff in European banks is ominous – MarketWatch