European Stocks Decline as Banks Fall on Greece; Centrica Slides

European stocks retreated after officials agreed to review the terms of Greece’s bailout and Standard & Poor’s downgraded the nation’s credit rating, reigniting concern about the sovereign-debt crisis.

National Bank of Greece SA (ETE) led a selloff in financial shares, dropping 4.1 percent as the cost of insuring Greek debt climbed to a record. Centrica Plc (CNA) led utilities lower after saying increased taxes will hurt earnings. MAN SE (MAN) advanced 1.5 percent after Volkswagen AG (VOW) increased its stake in the truckmaker.

The benchmark Stoxx Europe 600 Index fell 0.3 percent to 280.43 at 4:30 p.m. in London, extending last week’s 0.9 percent decline. The measure has still climbed 7 percent since March 16 as companies reported earnings that topped estimates and the U.S. Federal Reserve pledged to keep interest rates low.

“We all know that a lot of these economies are heading towards default and there is a lot of keeping balls in the air going on,” Trevor Greetham, director of asset allocation at Fidelity International, said on Bloomberg Television. “The markets are forcing them to tighten fiscal policy and the trouble is it’s weakening their economies. Yields are rising and the more that happens the worse the situation is.”

The yield on Greek two-year government bonds gained 25 basis points to 25.58 percent today. Credit-default swaps on Greece rose 30 basis points to a record 1,371, according to CMA, signaling a 68 percent probability of default within five years.

National Benchmarks

National benchmark indexes declined in 16 of 18 western European markets. Germany’s DAX Index (DAX) fell 1.1 percent, France’s CAC 40 slid 1.3 percent and the U.K.’s FTSE 100 slipped 0.6 percent. Greece’s ASE Index retreated 1.5 percent as National Bank of Greece sank 4.1 percent to 4.72 euros.

The European Union agreed in an unannounced meeting on May 6 to ease the terms of the 110 billion-euro ($158 billion) lifeline Greece received last year. The gathering followed a report in Der Spiegel magazine that Greece may withdraw from the euro. EU officials denied the report and said Greece will need more aid after investors drove yields on its two-year notes to more than 25 percent.

Stocks extended their losses after S&P lowered Greece’s sovereign-credit rating by two levels to B and said further reductions are possible. Another cut would make Greece the lowest-rated country in Europe.

Espirito Santo, BBVA

Banco Espirito Santo SA (BES), Portugal’s biggest publicly traded bank by market value, dropped 2.7 percent to 2.96 euros and Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s second-largest bank, slid 3 percent to 8.19 euros. Bank of Ireland Plc retreated 5.7 percent to 23.2 euro cents.

Credit-default swaps on Ireland reached an all-time high of 676 basis points and contracts on Portugal, Italy, and Spain also climbed.

HSBC Holdings Plc (HSBA), Europe’s largest bank by market value, fell 0.5 percent to 648.2 pence as Chief Executive Officer Stuart Gulliver said it may take as long as three years to meet its cost-reduction target. Expenses as a proportion of income rose to 60.9 percent in the first quarter from 49.6 percent.

Centrica declined 3.8 percent to 303.5 pence after the U.K.’s largest energy supplier said 2011 earnings will grow at a “more modest” rate than previously expected because of higher taxes on its production from the North Sea.

Thomas Cook, MAN

Thomas Cook Group Plc (TCG) dropped 2.9 percent to 165.7 pence after Europe’s second-largest tour operator said its first-half loss widened to 166 million pounds ($272 million) because of the cost of assisting holidaymakers affected by the popular revolts in north Africa.

MAN limited losses in the Stoxx 600, climbing 1.5 percent to 97.99 euros after Volkswagen raised its stake in the truckmaker and said it will boost the holding to as much as 40 percent to forge a deeper alliance between the two companies and Scania AB. (SCVB)

VW increased its holding in MAN to 30.47 percent, requiring Volkswagen to make a mandatory bid for the entire company. Europe’s largest carmaker offered 95 euros per common share, less than the May 6 closing price of 96.52 euros. VW shares retreated 2.2 percent to 127.60 euros in Frankfurt, while Scania, which has been pursuing a combination with MAN, rallied 3.7 percent to 155.50 kronor in Stockholm.

Misys Plc (MSY) surged 8.4 percent to 343.5 pence, the biggest increase in 11 months, as Credit Suisse AG reinstated coverage of the U.K. provider of software for the financial industry with an “outperform” rating.

Sophis Risks

“The stock’s current valuation is overly discounting the risks associated with the integration of Sophis as well as a turnaround in the company’s core banking software business,” London-based analyst Frederick Grieb wrote in a report. In February, Misys closed a deal to buy Sophis SCA to expand its operations in treasury and capital markets.

Inmarsat Plc (ISAT) rallied 4.4 percent to 619 pence. The biggest provider of satellite services to the maritime industry said first-quarter sales advanced 15 percent, helped by a North American spectrum-cooperation accord with Philip Falcone’s LightSquared Inc.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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