Europe Stocks Deepen Rout as Societe Generale Leads Bank Selloff

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  • Lenders post their biggest one-day plunge since August 2011
  • Randgold, Fresnillo rally as precious metals advance

What's the Heart of the Problem in European Banks?

The relief rally that swept through Europe’s stock markets Wednesday came to an abrupt halt, as shares slid for the eighth time in nine days and hit their lowest levels since September 2013.

The Stoxx Europe 600 Index lost 3.7 percent, the most since August, with more than 570 of its shares slumping. Financial results that fell below projections at Societe Generale SA, Rio Tinto Group and Zurich Insurance Group AG added to growing concern that central banks are powerless to stem a slowdown in the global economy. A slide in energy producers deepened as oil fell further.

“It’s hard to remain bullish when you get washed away with every wave every day,” said Patrick Spencer, equities vice chairman at Robert W. Baird & Co. in London. “There’s a lot of negative sentiment, credit spreads have blown out, you got worries about Deutsche Bank and CoCos, which just adds to the momentum. There’s plenty of capital around but also a lot of fear. It’s human emotion here.”

European shares have dropped 17 percent this year and reached their lowest levels since October 2013 on Feb. 9, before rebounding on Wednesday 1.9 percent. This week alone, the Stoxx 600 has lost 6.9 percent, heading for its biggest plunge since 2011. With a valuation of 13.4 times estimated profits, the gauge trades at a more than one-year low relative to the Standard & Poor’s 500 Index. Its multiple was above 17 last April.

At least five of the 10 worst-performing equity gauges among the 93 that Bloomberg tracks are from western Europe, with Germany’s DAX Index down 19 percent in 2016 and Italy’s FTSE MIB Index sinking 26 percent. A measure of volatility expectations for the region’s stocks jumped to its highest level since August.

While all industry groups have suffered, banks have been hit the hardest -- they’ve plunged 29 percent this year amid disappointing earnings results and worries over bad loans and creditworthiness. They extended their losses on Thursday, falling 6.3 percent as a group, the most since 2011.

Societe Generale tumbled 13 percent after reporting that quarterly profit missed estimates as earnings at the investment bank fell and it set aside provisions for potential legal costs. While Italian and Greek lenders had notable losses, Deutsche Bank AG and Credit Suisse Group AG dropped more than 6 percent, trading at or near a record low. With a 5.1 percent decline, Standard Chartered Plc was at its lowest price since 1998.

Rio Tinto fell 3.4 percent as it scrapped its progressive dividend policy and set out new spending cuts. Miners, which rebounded 18 percent from Jan. 20 to Feb. 5, declined for their third day this week. Randgold Resources Ltd. and Fresnillo Plc climbed more than 5 percent as precious metals rallied.

Among other companies moving after earnings, Zurich Insurance dropped 2.7 percent after posting a loss following damage claims ranging from the Tianjin disaster in China to storms in the U.K. and Ireland. Edenred, the French seller of prepaid meal vouchers, sank 10 percent after reporting annual earnings that fell short of estimates.

Adidas AG bucked the trend, rising 2.3 percent. The German sportswear maker raised its sales and earnings outlook for this year.

Meda AB jumped 67 percent after Mylan NV agreed to acquire the Swedish health-care company in a deal worth about $7.2 billion. Natixis SA added 5.6 percent after saying it’s buying a majority stake in mergers-and-acquisitions advisory firm Peter J. Solomon Co. to expand in the U.S. The French investment bank also reported an increase in quarterly profit and said it’ll pay an exceptional dividend.