European Stocks Halt Rally on U.S. Debt Stalemate; Lenders Drop
European stocks halted a four-day rally, after President Barack Obama and Congress failed to reach a deal to raise the U.S. debt limit, increasing concern that the world’s largest economy may default.
Banks declined after Moody’s Investors Service downgraded Greece’s sovereign-credit rating. Banca Popolare di Milano Scrl and Intesa Sanpaolo both tumbled more than 8 percent. Ryanair Holdings Plc (RYA) slid 1.8 percent after Europe’s biggest discount airline reported first-quarter earnings that missed estimates.
The benchmark Stoxx Europe 600 Index lost 0.2 percent to 271.47 at the 4:30 p.m. close in London. The gauge rallied last week after euro-area leaders agreed to a second bailout for Greece. The Stoxx 600 has still fallen 6.8 percent from this year’s high in February amid concern that Europe’s fiscal crisis will derail the economic recovery.
“There will be a last-minute settlement to the U.S. debt crisis,” said Jeremy Batstone Carr, head of research at Charles Stanley & Co. in London. “Perhaps the reason we are not seeing a profound selloff suggests to me that maybe some investors are actually looking to take on some risk on the assumption that the U.S. authorities will find a solution.”
Republicans and Democrats prepared dueling plans for raising the U.S. debt ceiling, unable to break a partisan stalemate over how to tackle the nation’s $14.3 trillion debt.
Boehner Debt Plan
House Speaker John Boehner of Ohio will pursue a two-step debt-limit extension that Obama has threatened to veto, fueling concern the nation is lurching toward a default that will jeopardize its AAA credit rating.
Mohamed A. El-Erian, whose Pacific Investment Management Co. is the world’s largest manager of bond funds, warned that the U.S. government may lose its credit rating even if lawmakers reach a plan to avoid a default.
National benchmark indexes declined in every western European market, except Germany. France’s CAC 40 Index lost 0.6 percent, while the U.K.’s FTSE 100 Index (UKX) slid 0.1 percent. Germany’s DAX Index advanced 0.3 percent.
Dexia SA (DEXB) paced a selloff in banks after Moody’s downgraded Greece by three steps to Ca from Caa1, saying that the European Union’s financing package for the debt-laden nation implies “substantial economic losses” for private creditors.
Dexia, BNP Paribas (BNP)
Belgium’s largest lender to local governments plunged 8.2 percent to 1.95 euros. Popolare di Milano, which was downgraded today to “underweight” at JPMorgan Chase & Co., slumped 8.3 percent to 1.54 euros and France’s BNP Paribas SA sank 4.5 percent to 46.64 euros. Intesa Sanpaolo slumped 8.3 percent to 1.61 euros, the bank’s biggest drop in two years. UniCredit SpA (UCG), Italy’s biggest lender, tumbled 7.1 percent to 1.23 euros.
Lloyds Banking Group Plc (LLOY) also retreated, falling 4.2 percent to 45.1 pence in London. The Sunday Telegraph said the lender is considering an initial public offering for the 632 bank branches it wants to sell after getting only two formal bids. The newspaper didn’t cite anyone.
People with knowledge of the sales process today said Britain’s biggest mortgage lender has extended a deadline to bid for the branches. NBNK Investments Plc and Co-Operative Bank Plc submitted offers this month, said the people who declined to be identified because the talks are private. Virgin Money Holdings U.K. Ltd. has held talks with Lloyds about the composition of the asset sales, a third person said.
Bank of Ireland rallied 1 percent to 10.2 euro cents after Finance Minister Michael Noonan said the state agreed to sell a stake in the Dublin-based lender to fewer than 10 unnamed institutional investors. The private sector will hold a minimum of 68 percent in the bank following the share sale this week.
Bank of Ireland
Noonan said the state wants to maintain about a 15 percent stake in Bank of Ireland to recover future investments in the lender.
“We expect as time goes by there will be a significant upside in Bank of Ireland,” Noonan said in an interview with Dublin-based broadcaster RTE today. The 1.12 billion-euro investment in the lender by the investors is a “strong signal” of confidence in Ireland, he said.
Ryanair dropped 1.8 percent to 3.40 euros in Dublin, its first decline in five days. The airline said first-quarter earnings were little changed at 139.3 million euros after higher fuel costs eroded gains from rising passenger numbers. That missed the average analyst estimate of 156.8 million euros, according to a Bloomberg survey.
Fiat Industrial SpA rallied 5 percent to 9.47 euros after the truck and tractor unit spun off from Fiat SpA in January raised its 2011 forecast for earnings before interest, taxes and one-off gains or costs to more than 1.5 billion euros.
Roche, Leoni Advance
Roche Holding AG (ROG) climbed 2 percent to 145.90 Swiss francs after BofA Merrill Lynch Global Research raised its recommendation for the world’s biggest maker of cancer drugs to “buy” from “neutral,” citing an attractive valuation.
Leoni AG (LEO) jumped 5.5 percent to 42.22 euros after Germany’s biggest maker of automotive electrical cables raised its full- year earnings forecast again. The company now expects to report sales of about 3.6 billion euros in fiscal 2011 and Ebit of about 230 million euros.
Invensys Plc (ISYS), the British maker of railway software and washing-machine controls, climbed 3.7 percent to 314 pence, the stock’s biggest gain since March, after the Times reported the company may pay 500 million pounds ($814.6 million) to divest its pension plans.
Hansen Transmissions International NV (HSN) surged 93 percent to 65 pence, the largest gain since its 2007 initial public offering, after the company agreed to be acquired by ZF Friedrichshafen AG for 66 pence per share, or about 444.8 million pounds.
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