Bank shares fall on cocktail of concerns

European markets fall again

European bank shares fell heavily on Monday after it emerged that UK authorities had joined counterparts in the US, Europe and Asia by investigating the sale of asset-backed securities.

Deutsche Bank shares fell nearly 9 per cent after it was named by the Financial Times as one of half a dozen banks being examined by Britain’s Serious Fraud Office as part of an evidence-gathering exercise into whether financial institutions fraudulently misrepresented securities deals to clients and counterparties in the UK.

The SFO has spent the past two years looking into sales of asset-backed securities — bonds backed by the repayments on vast pools of loans such as mortgages — after consulting senior City figures about which areas the agency should be looking into after the financial crisis.

The investigations come as Asian, European and US investment banks were last week sued by the US Federal Housing Finance Agency for allegedly mis-selling mortgage-backed securities. The FHFA is suing 17 financial institutions, including Nomura, Barclays and Bank of America, arguing that they mis-sold more than $100bn of securities.

Barclays shares fell nearly 7 per cent on Monday and RBS, another bank named in the US lawsuit, was the heaviest faller on the FTSE 100, down 10.2 per cent at 22.3p.

But investors in the sector were also unsettled by escalating worries about the future of the eurozone. The yield on Italian government bonds rose for an eleventh session as investors grew increasingly concerned about the dilution of €45.5bn package of austerity measures.

The breakdown of talks last week between international lenders and the Greek government and electoral defeat for Angela Merkel’s party in German local elections added to the sense of crisis surrounding the eurozone.

The European bank index was down more than 4 per cent and the Eurofirst 300 was 2.7 per cent weaker. The euro also fell against the dollar, yen and Swiss franc.

The SFO has yet to officially open an investigation into any company, but it is appealing for whistleblowers for the evidence it needs to bring any case. The agency could criminally prosecute a company or individuals or bring a civil recovery case if it can prove illegal activity.

“It’s a high hurdle to overcome in relation to prosecution of a company because we have to prove a directing mind — that there was a directing of the fraud,” Richard Alderman, SFO director, told the Financial Times. “That’s why it is very important to get whistleblowers as they are the best source of evidence.”

He said the SFO was sharing information with the Financial Services Authority, the main City regulator. The FSA declined to comment.

Goldman Sachs is another investment bank that the SFO is making inquiries into, including the so-called Timberwolf deal, a mortgage security the bank underwrote in 2007 and which has been the subject of litigation and scrutiny by lawmakers and regulators in the US.

Goldman Sachs declined to comment. Deutsche Bank did not comment on the SFO’s inquiries but referred to comments by the bank’s head, Josef Ackermann, in May who said the bank would defend itself “vigorously” against attacks it felt were “unjust”.

Mr Alderman did not name specific institutions and stressed that no official investigation had been started. The agency is monitoring litigation and regulatory activity in the US but its inquiries so far have been on its own initiative, he said.

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