European Stocks Drop as Portugal, Italy Banks Fall

July 10 (Bloomberg) -- On today’s “Single Best Chart,” Scarlet Fu examines Brean Capital Markets Peter Tchir’s hierarchy of a credit bubble. Nuveen Asset Management Chief Equity Strategist Robert Doll also speaks on “Bloomberg Surveillance.” (Source: Bloomberg)

European stocks fell for a fifth day as a gauge of lenders declined to its lowest level this year and equities in the so-called peripheral nations tumbled.

Banks in Portugal, Italy and Spain sank, sending an industry gauge to the fourth slump in five days. Fugro NV plunged the most since 2003 after predicting a drop in profit margin and a write-off of as much as 350 million euros ($477 million). Gerresheimer AG and Tryg A/S climbed after posting quarterly earnings that exceeded analysts’ estimates.

The Stoxx Europe 600 Index fell 1.1 percent to 336.37 at the close of trading in London, extending its five-day decline to 3.6 percent, the most since March. Investors are weighing valuations near the highest levels since 2009, while concern is rising over signs that the euro-area recovery remains fragile.

“We’ve seen a lot of money go into the periphery earlier this year, and banks have a fairly big weighting in those regions,” said Veronika Pechlaner, who helps oversee $2.3 billion at Jersey, Channel Islands-based Ashburton Ltd. “As investors revisit their positions, sentiment can turn quite quickly. The potential for banks to beat earnings this quarter is very limited, so investors think it’s prudent to take money away from the table.”

A gauge of lenders in the region sank 1.7 percent, falling the second most among 19 industry groups. Banco Espirito Santo SA plunged 17 percent to 50.9 euro cents before the Portuguese securities regulator suspended the shares.

Espirito Santo

Espirito Santo International SA is considering making a request for protection from creditors in Luxembourg if it can’t reach a debt renegotiation agreement with its main creditors, Diario Economico reported, without saying how it obtained the information.

Banque Privee Espirito Santo SA, fully owned by Espirito Santo Financial Group SA, said on July 8 that there was a delay in payments of some of the last maturities of short-term debt securities issued by ESI. The firm is fully owned by ESFG, which controls 25 percent of Portugal’s second-biggest bank by market value, and suspended trading in its shares and bonds today.

Banco Comercial Portugues SA, the country’s second-biggest publicly traded lender, lost 6 percent to 10.2 euro cents.

Portugal’s PSI 20 Index (PSI20) tumbled 4.2 percent, the most among 18 western-European markets, sending its seven-day slump to 12 percent, the biggest drop since August 2011. The index closed at its lowest level since October.

Spain’s IBEX 35 slipped 2 percent, while Italy’s FTSE MIB retreated 1.9 percent and Greece’s ASE decreased 1.8 percent.

Italy, Spain

Italy’s Banca Popolare di Sondrio Scarl lost 1.6 percent to 3.43 euros, as Banca Monte dei Paschi di Siena SpA fell 4.3 percent to 1.34 euros. Banco Popular Espanol SA lost 2 percent to 4.61 euros.

The value of equities in Portugal, Spain, Italy and Greece is falling after rising 13 percent in the first six months of 2014, compared with a 2 percent gain for the market capitalization of stocks in the U.K., Germany and France. The ratio between the two reached an almost three-year high. The last time shares in the so-called peripheral European nations rallied so much relative to those in the biggest economies, they lost about half their value in the following year.

All western-European markets fell today. The U.K.’s FTSE 100 dropped 0.7 percent and Germany’s DAX lost 1.5 percent. France’s CAC 40 slipped 1.3 percent to its lowest level since March.

The VStoxx Index, a gauge of expectations for price swings in euro-area stocks, jumped 10 percent.

High Valuation

The Stoxx 600 traded at 15.3 times the estimated earnings of its members yesterday, after its valuation reached 15.7 times last week, the most since the end of 2009, according to data compiled by Bloomberg.

Exports (CNFREXPY) from China climbed 7.2 percent in June from a year earlier, according to the customs administration in Beijing. That trailed the 10.4 percent median estimate of economists in a Bloomberg News survey. Imports gained 5.5 percent.

In the U.S., some Federal Reserve policy makers expressed concern that investors may be getting too complacent, minutes of their June meeting released yesterday showed. They agreed to end their bond-buying program in October if the economy holds up. Fed Bank of St. Louis President James Bullard said a rapid drop in joblessness will increase early next year.

Fugro sank 19 percent to 32.83 euros. The deepwater-oilfield surveyor said it expects a write-off of 300 million euros to 350 million euros, most of it in its Geoscience division. First-half margin on earnings before interest and taxes will be in the low-single digits, compared with a 11.4 percent margin a year earlier, the Dutch company said, citing project delays because of slower capital spending and a weakening oil and gas market.

DNB Earnings

DNB ASA (DNB) dropped 5 percent to 109.50 kroner, its biggest retreat since June 2013. Norway’s largest bank reported that second-quarter net income rose to 4.65 billion kroner ($760 million), missing analysts’ forecasts for 4.83 billion kroner.

London Stock Exchange Group Plc fell 3.1 percent to 1,896 pence. Qatar sold about one-third of its stake in the company, terms obtained by Bloomberg News showed. The stake was offered at 1,900 pence to 1,956 pence a share.

Skanska AB lost 2.5 percent to 147.1 kronor. The Nordic region’s biggest construction company by global revenue said it will scale down operations in Latin America after booking 500 million kronor ($73.7 million) in project writedowns and restructuring costs. Skanska also said it expects second-quarter operating profit of 920 million kronor. Analysts estimated earnings before interest and taxes of 1.36 billion kronor.

Gerresheimer Gains

Gerresheimer climbed 3.5 percent to 52 euros after the maker of syringes and inhalers posted second-quarter adjusted earnings before interest, taxes, depreciation and amortization of 65.1 million euros, surpassing the average analyst projection of 62.4 million euros.

Tryg added 2.1 percent to 563 kroner. The Danish property and casual insurer reported second-quarter profit of 869 million kroner ($159 million). Analysts on average had predicted 626 million kroner.

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net Srinivasan Sivabalan

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