French political crisis hits European bank stocks! Société Générale (SCGLY.US) and Deutsche Bank (DB.US) fell more than 5%, and Xiaoma said they would pull back or provide entry opportunities

The Zhitong Finance App learned that European bank stocks were sold off again on Wednesday, and the stock prices of Société Générale (SCGLY.US) and Deutsche Bank (DB.US) both fell by more than 5% at one point. As concerns over France's political situation and fiscal outlook continued to heat up, sovereign bond yields rose and dragged down the performance of the banking sector.

The European Stock Bank Index fell 4% for a while, and is likely to close at its lowest level in about three months. All components of the index fell, including major financial institutions such as BNP Paribas, Crédit Agricole, and Italy's Yushin Bank. The recent continuous correction has also narrowed the strong gains in European bank stocks since this year.

European financial markets have continued to be under pressure recently, and the risk that the French government may collapse and the fiscal deficit widen further has become a major disruptor. Investors increased the sell-off of French treasury bonds, driving the difference in yield between France and Germany's 10-year treasury bonds to about 140 basis points. The market is worried that if pressure on the French bond market continues to escalate, the ECB may face a rare market test since the European debt crisis more than 10 years ago.

Bank stocks are particularly sensitive to fluctuations in the sovereign bond market. Since this year, the performance of European bank stocks has clearly outperformed European markets and their US peers. Despite the recent sell-off, the European Stock Bank Index has accumulated a cumulative increase of about 12% since 2026, falling more than 8% from its August high.

However, J.P. Morgan believes that the recent decline in European bank stocks is more likely to be risk-taking behavior triggered by market sentiment and investor position adjustments, rather than the beginning of a substantial deterioration in banking fundamentals.

J.P. Morgan strategists, led by Davide Silvestrini, said in a report released on Wednesday that this round of correction may provide better entry opportunities for European bank stocks, especially Bank of France stocks. According to the bank's benchmark scenario, there is limited room for further sharp increases in bond yields, and the direct impact of widening interest spreads on sovereign bonds in France and other countries is also expected to have limited impact on banks' balance sheets.

J.P. Morgan pointed out that compared to direct capital or liquidity shocks, the market needs to pay more attention to the indirect effects that may be brought about by continued widening interest spreads on sovereign bonds, including changes in the structure of bank deposits and the pressure on asset quality caused by weakening macroeconomics. However, these risks currently depend more on market sentiment, the possibility of related scenarios, and how long sovereign bond spreads remain high, rather than an immediate mechanical impact on bank capital and liquidity.

As a result, although French political and fiscal uncertainty is increasing short-term fluctuations in European bank stocks, J.P. Morgan currently does not regard the recent decline as a long-term downward trend driven by fundamentals. Whether the French sovereign bond market can stabilize in the future, and whether interest spreads on French and German treasury bonds will continue to widen will be important factors affecting the trend of European bank stocks.