With Worsening Pandemic, Banking Blowout Sends Markets Into Spiral

Wall Street suffered another rout, caused this time not by fluctuations in Big Tech stocks but by plummeting bank shares.

President Donald Trump wraps up his speech and points to an infant at a campaign rally at Fayetteville Regional Airport in North Carolina on Saturday (AP Photo/Chris Carlson)

MANHATTAN (CN) — Investors hoping for a fresh start this week were rattled over the weekend by allegations that several large banks had laundered about $2 trillion in illicit funds, sending markets into a free fall.

The Dow Jones Industrial Average lost more than 450 points at the opening bell, and descended further from there, at one point nearing a 1,000 loss but closed out down 510 points, or 1.8%.

Losses weren’t as dramatic for the S&P 500 or Nasdaq, which settled at a 1.6% and 0.13% loss, respectively.

Even before U.S. markets opened, investors abroad had already portended a bad Monday. In Asia, the Hang Seng index in Hong Kong dropped 2%, while South Korea’s Kospi lost nearly 1%. Only the Nikkei in Japan saw any positive gains, and barely that, at 0.18% gained by the close of trading Monday. 

Things were far worse in Europe. Germany’s exchange lost more than 4% when all was said and done, followed closely by a 3.4% loss in France and a 3.3% drop in England’s Financial Times Stock Exchange. The pan-European Stoxx 600 fell 3%.

Many attributed the steep losses to recent media reports that large banks had laundered trillions of dollars in dirty money from fraudsters, offshore companies, Russian oligarchs and international criminals. The reports, led by BuzzFeed, came after Financial Crimes Enforcement Network documents were leaked by an investigator. 

The 2,500 FinCEN documents indicate that major banks — including JPMorgan, Standard Chartered, Barclays, HSBC and Bank of New York Mellon — had moved about $2 trillion using suspicious transactions over the years.

The documents also indicated that Turkish-Iranian money-launderer Reza Zarrab moved tens of billions of dollars, avoiding U.S. sanctions aimed at curbing Iranian nuclear arms development.

The FinCEN reports have been devastating to banks worldwide. Deutsche Bank, which allegedly shifted $1.2 trillion of the $2 trillion in suspicious transfers, took an 8.25% hit for the day, while shares of JPMorgan Chase fell by 3%.

Shares of HSBC, which allegedly moved funds used in an $80 million Ponzi scheme, plummeted 5.5% by the time markets closed in New York. Bank of New York Mellon decreased by 4%

Hong Kong-based bank Standard Chartered, also alleged to have allowed money laundering, fell 6.18% by the time markets closed abroad. French bank Societe Generale lost 7.6% in share value by the end of trading on Monday.

Others say the rise in Covid-19 infections in Europe has renewed investor worries, with cases in some countries now hitting levels not seen even when the virus first struck last spring.

“Stocks were essentially a one-way trade to the downside today as a fresh wave of Covid infection in Western Europe sparked fears of a second round of lockdowns that could derail the nascent recovery in the region wrote Boris Schlossberg of BK Asset Management wrote in an investor’s note. “The Covid rise is particularly troubling in [the United Kingdom] where a second lockdown could stifle what looked to be a strong consumer-led rebound.”

To date, more than 31 million have contracted Covid-19 worldwide, according to data compiled by Johns Hopkins University, while roughly 961,000 have died. In the United States alone, almost 6.8 million have been confirmed infected while almost 200,000 have died.

Last week, the World Health Organization’s regional director for the region said the spike in Covid cases should be a “wake up call” for authorities. “We have a very serious situation unfolding before us,” Hans Kluge said during a press briefing last week. “Weekly cases have now exceeded those reported when the pandemic first peaked in Europe in March.”

A potential resurgence of the virus has clobbered certain industries fearing another wave of shutdowns.

“The prospect of economic activity being curtailed across the board because of a potential reintroduction of tougher restrictions has hurt all sector, but the hospitality industry has suffered the most today,” wrote David Madden, a market analyst at CMC Markets. “The travel sector has also been rocked by the health emergency.”

Despite the horrible economic news and potential second wave of coronavirus, a sliver of good news gleamed dully: Household wealth has returned to the pre-Covid levels. According to the Federal Reserve, household wealth reached nearly $119 trillion at the end of the second quarter, slightly above the $118.5 trillion mark set at the end of 2019.

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