European Stocks Decline as Greek Debt-Relief Talks Reach Impasse

European Stocks Decline
Traders work on the floor of the Frankfurt Stock Exchange in Frankfur. Photographer: Ralph Orlowski/Bloomberg

European stocks declined from a five-month high as the region’s finance ministers failed to agree on a debt-swap deal for Greece and called for a greater contribution from bondholders.

Banks tumbled. Societe Generale SA and Credit Agricole SA retreated at least 4.1 percent after Standard & Poor’s cut the banks’ credit ratings. Siemens AG, Europe’s largest engineering company, dropped 1.2 percent after saying that achieving its goals for the year has become harder. Petroplus Holdings AG plunged to its lowest price ever after planning to file for insolvency.

The Stoxx Europe 600 Index fell 0.4 percent to 256.04 at the close in London. The gauge has still risen 4.7 percent so far this year as reports added to optimism that the global economy is strengthening.

“It seems as if we are far from an agreement,” said Yves Maillot, the Paris-based head of investments at Robeco Gestions SA, which oversees $6.8 billion. “The problem of solvency of countries remains, along with the question of Greece. The market situation is fragile. Market sentiment has been more positive recently, with investors factoring in the European Central Bank’s easing for banks.”

The region’s finance ministers, meeting in Brussels yesterday, balked at putting up more public money for Greece, calling on bondholders to provide greater debt relief in order to point the way out of the two-year-old debt crisis.

Aid Package

Euro-area governments stood by an October offer of 130 billion euros ($170 billion) for a second Greek aid package. Officials want to fill a deeper-than-expected hole in the nation’s finances by saddling investors with a lower interest rate on exchanged bonds.

Meanwhile, Greek Finance Minister Evangelos Venizelos said the Greek government intends to wrap up debt-swap talks with private investors by Feb. 1.

A report today showed that a combined measure of European services and manufacturing output unexpectedly expanded in January, led by Germany, the region’s largest economy.

A euro-area composite index based on a survey of purchasing managers in both industries jumped to 50.4, a five-month high, from 48.3 in December, London-based Markit Economics said in an initial estimate today. Economists forecast a reading of 48.5, according to the median of 17 estimates in a Bloomberg News survey. Fifty is the dividing line between expansion and contraction.

National benchmark indexes fell in 14 of the 18 western European markets. France’s CAC 40 lost 0.5 percent, as did the U.K.’s FTSE 100. Germany’s DAX retreated 0.3 percent.

Bank Shares

A gauge of banking shares fell 1 percent. Societe Generale retreated 5.4 percent to 21.57 euros. Credit Agricole lost 4.1 percent to 5 euros.

Societe Generale, France’s second-largest lender, and Credit Agricole had their ratings downgraded to A from A+, with a stable outlook, S&P said yesterday.

“The downgrade of some of these banks follows the downgrade of France,” S&P wrote.

Siemens declined 1.3 percent to 77.39 euros. The company said achieving its full-year goals has become harder to reach after profitability at its four divisions slipped as the debt crisis weighs on the economy.

Net income from continuing operations in the fiscal first quarter fell 27 percent to 1.36 billion euros ($1.77 billion), the company said. That missed the average estimate of 1.47 billion euros in a Bloomberg survey of analysts. New orders also dropped, Siemens said.

Petroplus Insolvency

Petroplus sank 84 percent to 24 centimes, its biggest decline and the lowest price since it issued shares to the public in November 2006. The company said it plans to file for insolvency in Switzerland and other jurisdictions. The Swiss refiner that has been trying to avoid bankruptcy had about $1 billion in credit lines suspended last month, preventing it from supplying its plants with crude.

Royal KPN NV, the biggest Dutch telephone company, fell 7.2 percent to 7.93 euros. The company said 2012 profit and cash flow will be lower. The company reported fourth-quarter earnings before interest, taxes, depreciation, and amortization of 1.32 billion euros, compared with the average analyst estimate of 1.36 billion euros. The company also said there will be no share buyback in 2012.

STMicroelectronics NV slid 5.8 percent to 5.30 euros. Europe’s largest semiconductor maker predicted that first-quarter revenue will fall as much as 10 percent from the previous three months because of lower sales at its wireless business.

Worst Performance

Chemring Group Plc tumbled 14 percent to 386.5 pence for its biggest drop in two months and the worst performance today in the Stoxx 600. The maker of missile avoidance systems for fighter jets reported a 30 percent decline in full-year pretax profit to 90.8 million pounds. Analysts at JPMorgan Chase & Co. cut their 2012 earnings-per-share estimate for the company by 15 percent to 54.3 pence, citing a “more cautious” outlook for growth and margins.

SBM Offshore NV, the world’s biggest supplier of floating oil-and-gas platforms, declined 12 percent to 13.10 euros, the most since November 2008, after saying its Yme project in Norway faces “increased challenges,” and that its chief financial officer will step down.

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