European Stocks Fall as EU Leaders Fail to Discuss Spain

European Stock Futures Fall as EU Leaders Discuss Bank Union
The ING Groep NV headquarters stand in Amsterdam, Netherlands. Pacific Century Group will buy ING’s insurance and pension units in Hong Kong, Macau and Thailand in a sale that values the life businesses at 24.3 times estimated 2012 earnings and a 1.9 times estimated 2012 book value of 865 million euros. Photographer: Jock Fistick/Bloomberg

European stocks fell, snapping four days of gains, after yesterday rising to their highest valuation since 2010, and as European Union leaders failed to discuss further aid for Spain.

Bankia SA led lenders lower, losing 14 percent as a gauge of banks contributed most to the Stoxx Europe 600 Index’s drop. Aggreko Plc fell 7.2 percent after it said bad-debt provisions would hurt full-year results. Spectris Plc surged 12 percent after it reported a 12 percent increase in sales last quarter and said it will meet its full-year targets. Carrefour SA advanced 5.9 percent after it agreed to sell its Colombian unit.

The Stoxx 600 fell 0.8 percent to 274.08 at the close of trading, paring its weekly gain to 1.7 percent. The gauge has rallied 17 percent from this year’s low on June 4 as the European Central Bank agreed on a bond-purchase program and the Federal Reserve announced further stimulus. Shares yesterday rose to 12.33 times their estimated profit, the highest price-earnings ratios since 2010, data compiled by Bloomberg show.

“We’re towards the top of the recent range, so from a short term technical standpoint you can understand why if there’s a bit of bad news out there then people may either just stop buying or take a bit of profit,” said Stewart Richardson, chief investment officer of RMG Wealth Management in London.

French President Francois Hollande said additional assistance for Spain wasn’t discussed at the summit of European leaders in Brussels.

Bank Supervisor

Leaders committed to their goal of establishing a euro-area bank supervisor by the end of the year. The EU will seek to agree on a framework that makes the ECB the main supervisor by Jan. 1, according to conclusions released early today after leaders met. The new system, intended to break the link between banks and governments at the root of the region’s financial crisis, will phase in over the next year and could cover all 6,000 euro-area banks by Jan. 1, 2014, a year later than initially targeted.

Still, the move doesn’t settle the question of when the European Stability Mechanism will be able to recapitalize banks directly. The plan calls for the supervisor to take charge of big banks and bailed-out institutions first, while also saying direct assistance requires “effective” supervision in place.

German Chancellor Angela Merkel said after the summit that it’s an open question whether European policy makers can meet the deadline they’d set hours earlier to establish a euro-area bank supervisor.

Complicated Questions

“There are complicated questions to clarify and we’ll see in December if we complete it or not,” Merkel told reporters after the two-day European Union meeting wrapped up today.

She also ruled out allowing Spain to shift bank-bailout loans off its balance sheet if they are made before the new system starts operating.

“The direct injection of capital into banks can now only happen once the supervisory framework has been put in place, which means now about sometime in 2013, which is different to the expectation of immediate recapitalization once the ESM was set up,” said William De Vijlder, CIO Strategy & Partners, BNP Paribas Investment Partners. “This triggers the questions: will this have an impact on the speed at which the Spanish banking recapitalization will be taken on, and how will rating agencies react to that? This is why you have markets behaving as they are today.”

Bankia SA and Banco Popular Espanol SA fell 14 percent to

1.10 euros and 5.3 percent to 1.31 euros, respectively. A gauge of banks was the worst performer of the 19 industry groups on the Stoxx 600.

KBC Groep

KBC Groep NV, a Belgian bank and insurer, fell 4.7 percent to 18.51 euros. Bank of America Corp. downgraded the stock to underperform, similar to a sell rating, from neutral.

Lloyds Banking Group Plc lost 3.3 percent to 40.49 pence. The stock was downgraded to underweight, the equivalent of sell, from neutral at JPMorgan Chase & Co.

Aggreko, the world’s largest provider of mobile power supplies, fell 7.2 percent to 2,137 pence, its biggest drop in 14 months, after it said higher bad-debt provisions would hurt full-year profits.

Drax Group Plc, the operator of Western Europe’s largest coal-fired power plant, fell 3.2 percent to 532.5 pence. The stock was downgraded to neutral from overweight at HSBC Holdings Plc.

STMicroelectronics NV, Europe’s largest semiconductor maker, fell 3.5 percent to 4.78 euros as Banco Santander SA cut its price estimated on the shares to 5.20 euros from 6.75 euros.

Spectris Gains

Spectris surged 12 percent to 1,779 pence. The maker of production-testing gear said it is well positioned to meet full-year expectations.

Preferred shares of Volkswagen AG, Europe’s biggest carmaker, added 1 percent to 149.90 euros.

Valeo SA advanced 3 percent to 35.95 euros. France’s second-largest car-parts maker said third-quarter revenue rose

6.8 percent to 2.84 billion euros from 2.66 billion euros a year earlier as demand from emerging markets offset a declining car market in Europe.

Carrefour gained 5.9 percent to 18.36 euros. Cencosud SA, Chile’s biggest retailer by sales, agreed to buy Carrefour’s Colombian unit for 2 billion euros including debt.

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