Bloomberg News

Swiss Stocks Drop for Second Day; UBS, Credit Suisse Lead Slide

October 03, 2011

Oct. 3 (Bloomberg) -- Swiss stocks retreated for a second day, extending their biggest quarterly drop since June 2010, amid concern global economic growth is slowing and that a possible Greek default could hurt banks’ balance sheets.

UBS AG and Credit Suisse Group AG dropped more than 4 percent. Rieter Holding AG, the textile-machinery maker, lost 3 percent. Holcim Ltd., the world’s second-biggest cement maker, climbed 5.7 percent after a report that board member Thomas Schmidheiny will increase his stake.

The Swiss Market Index, a measure of the biggest and most actively traded companies, declined 0.7 percent to 5,495.69 at the 5:30 p.m. close in Zurich. A technical glitch halted price updates for about two hours. The gauge has tumbled 15 percent this year as disappointing European and U.S. economic reports added to concern that the global recovery is faltering. The broader Swiss Performance Index also lost 0.7 percent today.

European Union finance chiefs are meeting today in Luxembourg to weigh the threat of a Greek default, grapple with how to shield banks from the fallout and consider a further boost to the region’s rescue fund.

“New statements on how banks can be protected from a possible collapse of Greece are expected from today’s meeting of the EU finance ministers,” Benno Galliker, a trader at Luzerner Kantonalbank in Lucerne, wrote in a note to clients. “It will be the financial shares that are going to be under pressure the most.”

‘Liquidity Backstop’

A much-needed “liquidity backstop” for the region must come from governments because the European Central Bank’s mandate requires it to keep purchases of sovereign debt “extremely limited,” said Bank of France Governor Christian Noyer, who is also a member of the ECB. He added that he is “open” to the idea of using borrowed money to enhance the capabilities of a European rescue fund.

“It would be unrealistic to expect an increase in the EFSF itself,” Noyer said, referring to the European Financial Stability Facility. “But I am personally open to any scheme that would allow existing commitments to be leveraged to provide greater intervention capacity.”

Today was the original target for approving an 8 billion- euro ($11 billion) loan payment to Greece, the sixth installment of a 110 billion-euro lifeline put together in May 2010. That decision has been pushed back until mid-October as Greece seeks to repair its finances. The new measures will help cut the deficit to 6.8 percent of gross domestic product from 8.5 percent this year, the finance ministry said last night.

ISM Index

Manufacturing in the U.S. unexpectedly accelerated in September. The Institute for Supply Management’s factory index climbed to 51.6 last month from 50.6 in August. A reading of 50 is the dividing line between contraction and expansion. Economists had projected the measure to fall to 50.5, according to the median forecast in a Bloomberg News survey.

An indicator of Swiss manufacturing output fell for the first time in more than two years in September, adding to the signs of a deepening economic slump.

The Procure.ch Purchasing Managers’ Index fell to 48.2 from 51.7 in August when adjusted for seasonal swings, Zurich-based Credit Suisse Group said. That’s the first contraction since August 2009. Economists projected the gauge to fall to 50.5, the median of 11 forecasts in a Bloomberg survey showed. A reading below 50 indicates contraction.

“We remain cautious on equities,” Dirk Wiedmann, chief investment officer at Rothschild Private Banking & Trust in Zurich, wrote in a report. “Markets are priced for very weak growth, but are not yet braced for another long downturn. While valuations are generally supportive, they often take a back seat at times when volatility is high.”

Banks Slide

UBS slid 4.3 percent to 10.09 Swiss francs. The bank’s rating was cut to “equal weight” from “overweight” by Morgan Stanley analysts. Huw van Steenis and Hubert Lam also reduced their price estimate for the stock to 13 francs from 15 francs, saying “the market may underestimate how many years it may take for UBS to restructure.”

A gauge of European banks was the second-worst performer of the 19 industry groups in the Stoxx Europe 600 Index. Credit Suisse fell 4.6 percent to 22.90 francs while Julius Baer Group Ltd., the 121-year-old wealth manager, slipped 1 percent to 30.40 francs.

Rieter Holding slumped 3 percent to 141.10 francs. The company may see lower operating margins this year and a decline in sales in 2012, Chairman Erwin Stoller said in an interview with Finanz und Wirtschaft newspaper.

Tecan Group AG, a maker of laboratory equipment, dropped 3.5 percent to 63 francs as Carla Baenziger, an analyst at Vontobel Holding AG, cut the company’s stock to “hold” from “buy.”

Holcim gained 5.7 percent to 51.45 francs, its highest price in two months. Schmidheiny said he plans to increase his stake to 20 percent from 18 percent, without specifying when, SonntagsZeitung reported, citing an interview.

--Editors: Srinivasan Sivabalan, Andrew Rummer

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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