European shares tumble as Turkish turmoil hits banks

MILAN (Reuters) - European shares fell on Friday as a dramatic fall in the Turkish lira jolted markets, with banks such as Spain’s BBVA and Italy’s UniCredit hit by worries over their exposure to Turkey.

FILE PHOTO: The German share price index, DAX board, is seen at the stock exchange in Frankfurt, Germany, March 20, 2018. REUTERS/Staff/File Photo

The pan-European STOXX 600 .STOXX index closed down 1.1, losing 0.9 percent on the week, as investors fretted about the political and economic repercussions of the Turkish crisis.

The Turkish lira fell to record lows as concerns over a widening rift with the United States persisted after a Turkish delegation returned from talks in Washington with no apparent solutions.

“As the talks ... have broken down for the time-being, no relief is to be expected,” BayernLB analyst Norbert Wuthe said.

“At the same time, the new U.S. sanctions against Russia have unleashed concern in the German economy,” he added.

Germany's exporter-heavy DAX .GDAXI index fell 2 percent, underperforming the broader market, while Milan was the hardest-hit major European index and lost 2.5 percent, its lowest level since July last year.

Banks were among the biggest fallers after the Financial Times reported that the European Central Bank is concerned about the exposure of some of the euro area’s biggest lenders to Turkey in light of the currency fall.

Shares in France's BNP Paribas BNPP.PA, Italy's UniCredit CRDI.MI and Spain's BBVA BBVA.MC fell 3 percent, 4.7 percent and 5.1 percent respectively.

Jefferies analysts said Turkey contributed 14 percent to BBVA’s first-half group profit and 9 percent to UniCredit’s consolidated profit, although their capital exposure is limited.

Both banks have said a 10 percent fall in the Lira could shave 2 basis points off their capital adequacy ratio.

Elsewhere, a profit warning from K+S SDFGn.DE sent shares in the German potash miner tumbling 7.2 percent, to the bottom of the STOXX index.

Another big loser was the tech sector .SX8P, which was down 1.5 percent with chipmakers at the sharp end of selling.

STMicro STM.MI, Siltronic WAFGn.DE, Infineon IFXGn.DE and AMS AMS.S lost 5.1 percent, 6.3 percent, 2.8 percent and 3.9 percent as negative sentiment pervaded semiconductors after disappointing results from U.S. chipmaker Microchip MCHP.O, a bellwether for the industry.

Reporting by Danilo Masoni; Editing by Susan Fenton and Alexander Smith