European Stocks Drop for Third Straight Day as Banks Face Need for Capital
European stocks sank to a seven- month low, extending the drop from this year’s high to almost 10 percent, after results from bank stress tests failed to allay concern that the region’s sovereign debt crisis is spreading.
A measure of banks in the Stoxx Europe 600 Index retreated the most in 11 months as analysts said lenders may have to raise as much as 80 billion euros ($112 billion) of additional capital. Atlas Copco AB (ATCOA) and Kuehne & Nagel International AG slid more than 4 percent after reporting earnings that missed analysts’ estimates.
The Stoxx 600 lost 1.8 percent to 262.1 at the 4:30 p.m. close in London as the cost of insuring against default on European government debt climbed to a record. The benchmark gauge for European equities has fallen to the lowest level since Nov. 30, bringing the drop from this year’s high in February to 9.98 percent. Strategists define a 10 percent decline from the most recent peak as a correction.
The European Banking Authority said after the close of trading on July 15 that 8 out of the 90 banks had failed the stress tests. Regulators didn’t include the impact of a Greek default in the assessments even though credit-default swaps indicate investors see an almost 90 percent chance of one.
“The fact that they can’t put in a sovereign-debt scenario does make it difficult to take these results seriously,” said Jane Coffey, head of equities at Royal London Asset Management in London. “They just at the moment want to get information out there.”
National benchmark indexes declined in every western European market, except Iceland. France’s CAC 40 Index slid 2 percent, while the U.K.’s FTSE 100 Index and Germany’s DAX Index each retreated 1.6 percent. Italy’s FTSE MIB tumbled 3.1 percent to the lowest in two years.
The cost of insuring against default on bonds sold by Greece, Ireland, Italy, Portugal and France rose to records, according to traders of credit-default swaps. Italy’s 10-year bond yield exceeded 6 percent, approaching the 7 percent mark that prompted Greece, Ireland and Portugal to seek bailouts.
The VStoxx Index (V2X), a measure of the cost of protecting against losses in the Euro Stoxx 50 Index, climbed 10 percent to 31, the highest since March 16.
European leaders plan to meet for the second time in a month on July 21 to revamp their debt-crisis-fighting strategy, aiming to break a deadlock that has spooked investors and prompted the International Monetary Fund to warn of contagion. Germany said it’s confident that officials will reach agreement on funding a second bailout for Greece while European Central Bank President Jean-Claude Trichet reiterated opposition to any Greek debt restructuring.
Deutsche Bank AG (DBK), Germany’s biggest lender, slid 3.5 percent to 35.87 euros while Italy’s UniCredit SpA (UCG) sank 6.4 percent to 1.13 euros. Barclays Plc (BARC), the U.K.’s second-largest bank by assets, lost 7 percent to 207.65 pence and Banco Comercial Portugues SA (BCP) plummeted 7.3 percent to 29.5 euro cents.
JPMorgan Cazenove analysts led by Kia Abouhossein wrote in a report after the stress-test results were published that as many as 20 banks may need to boost capital.
“We remain worried about the secondary effect of the sovereign crisis into funding,” the JPMorgan analysts said. “Funding is the key concern, and without stress liquidity assumptions, the picture remains incomplete -- especially in current market conditions.”
Christopher Wheeler, a banking analyst at Mediobanca SpA in London said UniCredit, Deutsche Bank, BNP Paribas (BNP) SA, Credit Agricole SA, Societe Generale (GLE) SA, Banco Santander SA and Credit Suisse Group AG (CSGN) are among banks that may have to raise a combined total of about 62 billion euros in additional capital. All the banks passed the EBA’s tests.
Atlas Copco tumbled 8.1 percent to 149.7 kronor after the world’s largest maker of air compressors reported second-quarter net income of 2.98 billion kronor ($450 million). That missed the average analyst average estimate of 3.2 billion, according to a survey compiled by Bloomberg.
Kuehne & Nagel lost 4.2 percent to 113 Swiss francs after the 120-year-old shipping company reported second-quarter net income of 158 million francs ($194 million), trailing the average analyst estimate of 163 million francs.
A gauge of auto-industry shares had the third-biggest drop among industry groups in the Stoxx 600, after banks and insurers. Daimler AG (DAI), the world’s second-largest maker of luxury cars, slid 3.3 percent to 51.50 euros. Inchcape Plc (INCH) lost 8.2 percent to 373.8 pence after Societe Generale cut the operator of car dealerships to “sell” from “buy.”
Safran SA (SAF) retreated 4.8 percent to 27.22 euros after Deutsche Bank lowered its recommendation for the defense company to “hold” from “buy.” JPMorgan Chase & Co. last week removed the shares from its European “analyst focus” list.
Holcim Ltd. (HOLN) slipped 3.3 percent to 54.65 francs after Chief Executive Officer Markus Akermann warned profitability may suffer “some pressure” as the cost of raw materials rises in local currencies. Akermann was speaking in an interview with Finanz & Wirtschaft.
Parmalat SpA (PLT) dropped 7.2 percent to 2 euros as the Italian diary company’s weighting on the FTSE MIB shrank at the close of trading on July 15. Separately, analysts at Nomura Holdings Inc. said the company may reduce its full-year earnings forecast when it reports first-half results on July 28.
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