European Stocks Decline as Drugmakers Retreat
The benchmark Stoxx Europe 600 Index slipped 0.4 percent
JB Reed/Bloomberg
GlaxoSmithKline Plc's Avandia diabetes drug.
GlaxoSmithKline Plc's Avandia diabetes drug. Photographer: JB Reed/Bloomberg
July 27 (Bloomberg) -- Jonathan Stubbs, head of European and U.K. equity strategy at Citigroup Inc., talks with Bloomberg's Haslinda Amin about the results of the stress tests for European banks and his investment strategy. Stubbs, speaking in Hong Kong, also discusses the outlook for the global economy. (Source: Bloomberg)
European stocks advanced for a fifth day as European Union stress-test results showed the majority of the region’s banks are adequately capitalized and U.S. home sales rose more than forecast.
Allied Irish Banks Plc and Dexia SA rallied more than 5 percent, leading a gauge of banks higher. BP Plc gained 4.6 percent as the oil company was said to be planning on replacing Tony Hayward as chief executive officer. GlaxoSmithKline Plc lost 1.3 percent after a report that the U.K.’s largest drugmaker may be interested in buying Genzyme Corp.
The benchmark Stoxx Europe 600 Index rose 0.5 percent to 257.12 as of the 4:30 p.m. close of trading in London, the highest level since June 22. The gauge has still retreated 5.5 percent from this year’s high on April 15 on concern that growth will stall as indebted European governments slash spending.
“Economic data itself has continued to improve,” Gary Baker, the head of BofA Merrill Lynch’s pan-European equity strategy said at a press briefing in London today. “The real economy has been relatively good. Valuations are very supportive and continue to look favorable” for equities, he said.
European regulators found that 7 of the 91 banks tested need to raise a combined 3.5 billion euros ($4.5 billion) of capital. Before the results were published, analysts at Goldman Sachs Group Inc. estimated that lenders would need to raise 38 billion euros and Barclays Capital said they would require as much as 85 billion euros.
Benchmark Indexes
National benchmark indexes rose in 16 of the 18 western European markets today. The U.K.’s FTSE 100 increased 0.7 percent and France’s CAC 40 gained 0.8 percent. Germany’s DAX added 0.5 percent.
European stocks reversed earlier losses after a Commerce Department report showed sales of new U.S. homes rose in June by more than forecast, following an unprecedented collapse the prior month, a signal the worst of the slump triggered by the end of a government tax credit may be over.
Allied Irish led bank stocks higher, rallying 5.6 percent to 95 euros cents in Dublin. Dexia climbed 9.1 percent to 3.61 euros, while France’s Societe Generale SA gained 5.2 percent to 39.99 euros. The banks were among 84 to pass the European banking stress tests.
The tests carried out by the Committee of European Banking Supervisors showed that Germany’s Hypo Real Estate Holding AG, Agricultural Bank of Greece SA and five Spanish savings banks didn’t have adequate reserves to maintain a Tier 1 capital ratio of at least 6 percent in the event of a recession and sovereign- debt crisis, lenders and regulators said after the close of European trading on July 23.
‘Credible’ Losses
“We find the losses produced by the CEBS credible,” BofA Merrill Lynch analyst Derek De Vries wrote in a report today. “While some commentators have been critical that the stress tests didn’t include the impact of sovereign restructuring in the banking book, we applaud CEBS’ decision to force banks to disclose all of their sovereign exposure.”
BP gained 4.6 percent to 416.95 pence. Two people with knowledge of the matter said the company is planning to name Robert Dudley to succeed Hayward as chief executive as the board looks to recover BP’s position in the U.S. after the Gulf of Mexico oil spill. BP said no final decision has been made regarding possible management changes.
Tullow Oil Plc rallied 5.1 percent to 1,239 pence after the U.K. explorer with the most licenses in Africa said it discovered a “major” oil field off the coast of Ghana.
Pearson, Glaxo
Pearson Plc climbed 5.8 percent to 1,029 pence as the owner of the Financial Times newspaper raised its outlook for 2010 after first-half profit more than tripled to 92 million pounds ($143 million) on growth in its education business and at book publisher Penguin.
Glaxo slid 1.3 percent to 1,172 pence, leading a gauge of health-care stocks to the biggest drop among 19 industry groups in the Stoxx 600. The company declined to comment on a report in the Wall Street Journal that it recently made a “very casual” overture to Genzyme, asking the drugmaker to keep it in mind if it considered selling itself.
Connaught Plc plunged 69 percent to 31.46 pence after the biggest U.K. public-housing maintenance company said it requires “urgent” funding to meet the needs of the business. Net debt will be “significantly in excess” of the 120 million pounds it forecast for Aug. 31, the company said.
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
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