No relief for European stocks as battered banks extend losses

European stocks fell on Monday and were on course for their worst day in almost three months, as the region's banking stocks continued to tumble even after authorities stepped in to cap the fallout from the sudden collapse of Silicon Valley Bank (SVB).

The pan-European STOXX 600 index (.STOXX) fell 2.4% and eyed its biggest percentage decline in December 2022. Banks, automakers and insurers were among the top decliners.

Wall Street futures shed most of their early gains after the Federal Reserve and US Treasury announced a range of measures to stabilize the banking system and said SVB depositors would have access to their deposits on Monday.

"Investors have still been shaken by the event of the past few days, and are waiting with bated breath to see if repercussions in the financial sector will spill over and create pools of fresh problems," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

"There is expectation that weaknesses remain in pockets of the system and the US Treasury may have to step in with further guarantees of deposits at other banks."

European banking stocks (.SX7P) dropped 5.7%, on course for their worst two-day selloff since the Russia-Ukraine war broke out early last year.

Worries emerged around the resilience of the sector's balance sheet in the face of SVB's collapse. However, the European Central Bank (ECB) is not planning an emergency meeting of its banking supervisory board on Monday, a senior source told Reuters.

Meanwhile, investors now see a nearly 90% chance that the Fed will hike interest rates by 25 basis points (bps) next week, a drastic change from the 50-bps hike they had priced in previously following strong economic data.

Goldman Sachs said on Sunday it expects no rate hike in light of the recent stress in the financial sector.

The ECB looks set to hike rates by 50 bps later this week.

The wider risk off moves sent Credit Suisse shares (CSGN.S) down 12.1% to a fresh record low.

Germany's Commerzbank (CBKG.DE) slumped 11.3%, France's Societe Generale (SOGN.PA) and Spain's Sabadell (SABE.MC) fell 6.2% and 9.4%, respectively.

HSBC (HSBA.L) dropped 4.1% after the British bank said it is acquiring the UK subsidiary of SVB for 1 pound, rescuing a key lender for technology start-ups in Britain.

Novartis slipped 1.0% even as the Swiss company said it formally launched its new share buyback program where it could spend up to 10 billion Swiss francs ($10.90 billion) repurchasing its shares over the next three years.