LONDON (Reuters) - Two of Europe's biggest banks - Credit Suisse <CSGN.S> and Deutsche Bank <DBKGn.DE> - will be dropped from an index of Europe's top 50 blue-chip companies next week in a further blow to the embattled sector.
For Deutsche Bank, it will be the first time since 1998 that it will no longer be a member of the STOXX 50 <.STOXX50>.
Shares of both were firmly in the red on Tuesday, with Credit Suisse down more than 5 percent and Deutsche off 3.5 percent.
The decision by STOXX Ltd, which manages Europe's top benchmark stock indexes, came following a near halving in value of Credit Suisse and Deutsche shares this year. Deutsche shares are now more than 88 percent below their 2007 peaks.
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Banks in Europe are grappling with deteriorating profits, slumping investment income on the back of collapsing yields and higher regulatory costs.
Commerzbank's <CBKG.DE> warning on profits and negative interest rates sent its shares to a record low on Tuesday.
While the results of the latest health check on regional banks by the European Banking Authority were greeted by investors with a sense of relief, the fact that the tests did not take into account interest rates staying negative for a long time has met with criticism.
"If rates stay this low, interest income will not be that much of a contributor to the capital base and from that angle, it’s difficult to see the banks being in a strong position," Gerhard Schwarz, head of equity strategy at Baader Bank in Munich, said.
Exclusion from a benchmark generally means that exchange-traded funds and other passive investors that track the index will be forced to sell the shares.
The European banking index <.SX7P> fell 2.8 percent, the worst sectoral performer, taking this year's total losses to more than 30 percent.
The two banks will be replaced by technology firm ASML Holding <ASML.AS> and construction company Vinci <SGEF.PA> in the STOXX Europe 50 index <.STOXX50>. STOXX Ltd, which operates Deutsche Boerse Group's <DB1Gn.DE> index business, said late on Monday that the changes will become effective from Aug. 8.
(Reporting by Atul Prakash; Additional reporting by Vikram Subhedar and Sudip Kar-Gupta Editing by Mark Potter)