(Reuters) -European bank shares remained unsteady on Friday after steep falls a day earlier, as bankers grapple with the potential impact of a slew of sanctions following Russia's invasion of Ukraine.
Shares wavered as missiles pounded the Ukrainian capital and its President Volodymyr Zelenskiy pleaded with the international community to do more, saying sanctions announced so far were not enough.
Leading European banks initially recovered some ground but by midmorning, the European banking sector index was trading down 0.3%, on top of an 8% fall on Thursday.
Details of the next round of European sanctions were still a work in progress but the European Union is expected to freeze Russian assets in the bloc and halt its banks' access to European financial markets as part of what EU foreign policy chief Josep Borrell described as "the harshest package of sanctions we have ever implemented".
"This package includes financial sanctions, targeting 70% of the Russian banking market and key state-owned companies, including in defence," EU Commission chief Ursula von der Leyen said on Twitter (NYSE:TWTR).
Behind the scenes, bankers said that they and their lawyers were scrambling to determine the impact of sanctions.
In a report on Friday, JP Morgan analysts said sanctions would have a limited impact on banks and that the bigger problem was the economy.
"The key risk for European banks relates to potential GDP downgrades due to higher commodity related prices and hence potential delays in interest rate hike expectations," the report said.
The prospect of higher interest rates have brightened the outlook for banks after years of ultra-low and negative rates ate away at their profit margins.
On Thursday, banks with the biggest exposure to Russia fell the most.
That included Austria's Raiffeisen Bank International, which lost 23%, regaining 4.1% on Friday.
Societe Generale (OTC:SCGLY), which lost 12% on Thursday, and was down another 1.7% on Friday.
Some investors have already been holding back on exposure to Russia going into the crisis.
"We had our own screening view of what businesses would most likely be impacted through strong sanctions and that had been an area where we've been seeking to reduce our exposure," Andrew Formica, the chief executive of Jupiter Fund Management, said.
For European banks, the greatest concern has been that governments would cut Russia out of the SWIFT international payment network, but so far that hasn't happened.
Bankers have argued cutting Russia off from the international payments network could seriously hurt its economy and everyday citizens, and would create enormous complexity and compliance risks for the global banking industry.
While Britain is pushing to cut Russia out of SWIFT, French Finance Minister Bruno Le Maire said on Friday that option would only be used as a last resort.
