European shares rebound as banking jitters ebb on SVB deal

By Sruthi Shankar and Bansari Mayur Kamdar

(Reuters) -European stocks climbed on Monday, as a sense of calm returned to markets following a week of turbulence over concerns about banking sector stability after the collapse of Credit Suisse and two U.S. mid-sized lenders.

The pan-European STOXX 600 index rose 1.1%, with investors drawing comfort from news that First Citizens BancShares Inc would acquire Silicon Valley Bank's deposits and loans.

European banks rose 1.4% after shedding 3.8% on Friday, when Deutsche Bank sparked a rout in the sector. Shares of that German lender were up 6.2% after tumbling 8.5% on Friday.

Shares of Swiss bank UBS, which took over Credit Suisse in a rescue deal last week, rose 1.1%.

Credit Suisse inched up 0.5% as the Swiss financial regulator, FINMA, said over the weekend it was considering whether to take disciplinary action against the bank.

"Many investors still don't want to touch the banking sector for fears there is more distress to come," Russ Mould, investment director at AJ Bell, said.

"Yet for every bleak situation, there is always someone who sees an opportunity to make money, hence why we're seeing a rise in the share price of many European banks today."

Healthcare stocks were the top gainers in Europe, rising 1.9%.

Novartis climbed 7.7% after the Swiss drugmaker said its Kisqali breast cancer drug had been shown to cut the risk of recurrence in women who were diagnosed at an early stage.

European stocks are looking to end the first quarter of the year with gains, buoyed by signs of economic resilience and hopes that central banks are near the end of their tightening cycles. However, European banks are set to end the quarter nearly flat amid the banking sector turmoil.

"Even though Mr. Powell, Madame Lagarde, Mr. Bailey and Mr. Jordan kept their policy stance unchanged despite the mounting stress in banks, if other banks, the size of Deutsche Bank, get sucked in this confidence crisis, we could well see the interest rate expectations point more seriously at a pivot in major central banks’ tightening plans," Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said.

An Ifo institute survey showed German business morale unexpectedly rose in March, adding to signs that Europe's largest economy is recovering despite the energy crisis and high inflation.

However, airports and bus and train stations across Germany were at a standstill, causing disruption for millions at the start of the working week during one of the largest strikes in decades.

French telecom company Orange rose 2.1% after Morgan Stanley upgraded the stock to "overweight".

Shares of China-exposed luxury names such as Pernod Ricard and miners including Rio Tinto slipped after data showed a slump in Chinese industrial firms' profits deepened in the first two months of 2023.

(Reporting by Sruthi Shankar and Bansari Mayur Kamdar in Bengaluru; Editing by Subhranshu Sahu and Andrew Heavens)