What happened
At approximately 10 p.m. ET last night, Russian military forces launched an all-out assault on their neighbor Ukraine. Russian stocks are plummeting -- but not only Russian stocks. Three big European banks also saw their stock prices crash this morning.
As of 10:45 a.m. ET, shares of:
- ING Groep (ING 0.98%) is crashing 9.5%;
- Deutsche Bank (DB 0.61%) is down 11.7%;
- and Lloyds Banking Group (LYG 0.80%) is down most of all -- 13.2%.
So what
For a few reasons, these declines make sense. Stock markets are understandably nervous today, with both the S&P 500 and the Dow down more than 1%. And presumably, the closer you are to Russian tanks, the more nervous you're feeling right now. ING, Deutsche, and Lloyds are European banks, so it makes sense that investors in these three bank stocks in particular would be worried.
They're worried not because they think Russia will move on from Ukraine to invade the rest of Europe -- the NATO alliance should discourage that. They're probably not even particularly worried about war's disruption of their banks' Russian and Ukrainian business. According to data from S&P Global Market Intelligence, Deutsche Bank gets less than 14% of its revenue from Russia and Ukraine -- probably much less, as these countries are grouped within a wider category of the "rest of Europe, Middle East and Africa," while ING's Russian and Ukrainian exposure is less than 1% of annual revenues, and Lloyd's doesn't even bother to break out the numbers.
No, the bigger worry, I suspect, is about sanctions.
Image source: Getty Images.
Now what
European and North American nations began levying sanctions on Russia earlier this week, when Russian troops first started moving into occupied territories in Eastern Ukraine. Now, with a shooting war having begun, the likelihood is that sanctions will only get tougher, up to and including the potential for Russia getting shut out of the SWIFT system that enables financial transactions between countries.
Ukraine has officially requested that cutting Russia off from SWIFT be on top of the list of new sanctions imposed on Russia, and if that request is granted, all financial business between Russia and the outside world will grind to a halt. It's hard to say precisely how much this would affect these banks' businesses. (Remember, they don't actually do a lot of business in Russia.) But for now, that uncertainty seems to be manifesting itself in the form of stock price declines anyway.
Once investors realize that ING, Deutsche, and Lloyds don't actually do a whole lot of business in Russia, however, I suspect that the stock price declines we are seeing today will snap right back. In short, if you were already considering investing in European banking stocks before this whole mess started, then today's sell-off just might be a great opportunity to double down on your research.