Societe Generale (GLE) SA posted a record decline and led a drop in French banking shares as the cost of insuring the country’s government bonds increased. UniCredit SpA (UCG), Italy’s biggest bank, paced a retreat in Italian banks after the country’s credit-default swaps widened.
Societe Generale shares slumped as much as 23 percent and were down 16 percent at 21.89 euros at 4:27 p.m. in Paris. Credit-default swaps on the bank rose 29 basis points to a record 299 basis points.
Societe Generale “categorically denies all market rumors,” Emmanuelle Renaudat, a spokeswoman for the French bank said in an interview. She declined to be more specific.
Bank shares lost 5.3 percent, for the biggest decline among the 19 industry groups in the Stoxx Europe 600 Index and the steepest drop since May 2009. French and Italian banks led the retreat. BNP Paribas (BNP) SA shed 11 percent to 35.06 euros and Credit Agricole SA (ACA) sank 15 percent to 5.82 euros.
“If credit default swaps on France are under attack, that’s not a good sign,” said Yves Marcais, a sales trader at Global Equities in Paris. “That means that France is under attack and that’s worrisome. French banks hold a lot of French bonds.”
The cost to insure French government debt against default rose 10 basis points to a record 171 basis points, according to CMA.
The FTSE Italia All-Share Banks Index fell as much as 9.4 percent, the most since May 2010. UniCredit dropped as much as 9.1 percent, and was down 8.9 cents to 98 cents by 4:40 p.m., giving the bank a market value of 19 billion euros ($27 billion). Intesa Sanpaolo SpA (ISP), the second-largest lender, lost as much as 13 percent, and was down 17 cents to 1.14 euros.
Italian government officials are meeting representatives of labor unions and business executives in Rome to discuss the country’s austerity initiatives amid the euro region’s debt crisis. The meeting follows the Aug. 6 announcement by Prime Minister Silvio Berlusconi that Italy will balance the budget in 2013, a year earlier than previously planned, to prevent a contagion to Europe’s third-biggest economy.
The European Central Bank bought Spanish and Italian bonds today, according to four people with knowledge of the transactions. The amount of securities acquired by the central bank was smaller than in the past two days, said one of the people, who asked not to be identified because the trades are confidential.
An ECB spokesman declined to comment on whether the central bank bought the bonds. European Central Bank President Jean- Claude Trichet signaled on Aug. 7 he was ready to start buying Italian and Spanish debt.
Investors currently demand about 90 basis points of extra yield to buy 10-year French debt rather than German bunds, even though both carry AAA grades from the major rating companies. That spread is almost triple the 2010 average of 33, and compares with 17 in the second half of the previous decade.
French bonds are the most costly AAA government securities to insure as investors raise bets that top-rated euro-region nations may be next in the firing line after the U.S. was downgraded by one notch to AA+ by S&P on Aug. 5.
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