Bloomberg News

European Stocks Slide for Third Day; Dexia, Air France Tumble

October 04, 2011

Oct. 4 (Bloomberg) -- European stocks dropped for a third day, the longest losing streak in four weeks, as policy makers signaled they may renegotiate terms of Greece’s bailout, deepening concern about the impact of the debt crisis.

Dexia SA tumbled to a record low as the board asked Belgium’s biggest bank by assets to solve its “structural problems.” Deutsche Bank AG slid 4.3 percent after abandoning its 2011 earnings forecast. National Bank of Greece SA sank to the lowest since 1996. Air France-KLM Group retreated to a 20- year low after the head of the IATA industry association said profit projections may be unsustainable.

The benchmark Stoxx Europe 600 Index fell 2.8 percent to 217.46 at the 4:30 p.m. close in London, the lowest level in a week. European finance chiefs meeting yesterday considered “technical revisions” to the second Greek bailout, Luxembourg Prime Minister Jean-Claude Juncker said today, fueling concern bondholders may have to take bigger losses on the nation’s debt.

“Any uncertainty or delay is unwelcome, as fear breeds fear and market trends are not easily reverted,” said Emmanuel Hauptmann, senior equity fund manager and partner at Reyl Asset Management SA in Geneva. Ministers considering a higher contribution by private investors to the Greek rescue “creates uncertainty as to how high the bill for European banks in particular may be, explaining the ever-increasing volatility of the sector.”

25% Drop

The Stoxx 600 has fallen 25 percent from this year’s peak on Feb. 17 as European and U.S. economic reports trailed forecasts, adding to concern that the global economic recovery is at risk. The decline has left the measure trading at 9.1 times estimated earnings, near the cheapest since March 2009, data compiled by Bloomberg show.

National benchmark indexes retreated in all 18 western European markets. Germany’s DAX slumped 3 percent, while France’s CAC 40 and the U.K.’s FTSE 100 lost 2.6 percent. Greece’s ASE sank 6.3 percent to the lowest level since 1993.

Finance ministers meeting yesterday considered reshaping a July rescue deal for Greece that foresaw investors contributing 50 billion euros ($66 billion) to a 159 billion-euro bailout. That private sector involvement, or PSI, includes debt exchanges and rollovers.

“As far as PSI is concerned, we have to take into account that we have experienced changes since the decision we have taken on July 21,” Juncker told reporters early today after chairing a meeting of euro finance chiefs in Luxembourg. “These are technical revisions we are discussing.”

‘Knock-On Effects’

“The worse things get in Greece, the more pressure there is to further ‘bail in’ private creditors and the greater the perceived knock-on effects of a Greek default across the rest of the euro zone’s periphery and throughout Europe’s banking system,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, wrote in an e-mail. “Sentiment is bearish, euro zone-driven and hyper-sensitive to developments in Greece.”

Goldman Sachs Group Inc. cut its global growth forecast for this year and next, predicting recessions in Germany and France as the European economy stalls and the risk of a contraction in the U.S. grows. The world economy will probably expand 3.8 percent this year and 3.5 percent in 2012, compared with earlier predictions of 3.9 percent for 2011 and 4.2 percent for next year, Goldman Sachs economists Jan Hatzius and Dominic Wilson wrote in an Oct. 3 report.

‘Further Action’

Stocks pared their losses as Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank stands ready to take additional steps to boost growth and cautioned lawmakers against budget moves that would harm a “sluggish” recovery.

The Fed “will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in a context of price stability,” Bernanke said in testimony to Congress’s Joint Economic Committee in Washington.

Dexia plunged 23 percent to 1.01 euros, the lowest since it started trading in 1996. The board asked Chief Executive Officer Pierre Mariani to prepare “necessary measures” to fix the company’s “structural problems” after Europe’s government-debt crisis worsened.

The shares rebounded from a 38 percent drop as the French and Belgian governments pledged to support the bank.

Dexia Support

France and Belgium will take “all necessary measures” to protect clients and will guarantee all Dexia’s loans, French Finance Minister Francois Baroin and Belgian Finance Minister Didier Reynders said. Belgium’s cabinet will meet in Brussels tonight to review the options for the lender. Both governments have stakes in the bank following its bailout in 2008.

BNP Paribas SA, France’s biggest bank, declined 5.2 percent to 27.18 euros and Societe Generale SA retreated 4.9 percent to 18.04 euros.

Dexia, BNP Paribas and Societe Generale are resisting pressure from regulators to accept more losses on their holdings of Greek government debt amid criticism they haven’t written down the bonds sufficiently.

While most banks have marked their Hellenic debt to market prices, a decline of as much as 51 percent, Dexia, BNP and Societe Generale cut the value of some holdings by 21 percent. The practice, which doesn’t violate accounting rules, may leave them vulnerable to bigger impairments in the event of a default.

Deutsche Bank Slides

Deutsche Bank slipped 4.3 percent to 24.64 euros. Germany’s largest lender dropped its 2011 profit forecast and announced plans to cut 500 jobs as market volatility and unexpected costs on an indirect tax position weighed on third-quarter earnings.

National Bank of Greece, the nation’s biggest lender, plunged 14 percent to 2.19 euros, the lowest in 15 years. Alpha Bank SA and Piraeus Bank SA fell 9.8 percent to 1.10 euros and 18 percent to 36 euro cents, respectively.

Air France sank 9.1 percent to 4.83 euros, its lowest price since at least December 1991. International Consolidated Airlines Group, the parent of British Airways, declined 3.4 percent to 149.3 pence while European Aeronautic, Defence and Space Co., the maker of Airbus SAS aircraft, slid 5.2 percent to 19.83 euros.

Tony Tyler, chief executive officer of the International Air Transport Association since July 1, said profits forecast to total $28 billion in the three years through 2012 may be unsustainable as over-capacity and looming regulatory costs weigh on margins.

Automakers Drop

Volkswagen AG, Europe’s largest carmaker, lost 7.1 percent to 88.54 euros, leading a gauge of auto-industry shares in the Stoxx 600 to the lowest since May 2010. Renault SA, France’s second-largest automaker, sank 8.2 percent to 22.34 euros and Fiat Industrial SpA, the truck and tractor unit spun off from Italian carmaker Fiat SpA, fell 8.5 percent to 4.89 euros, the lowest in nine months.

Lafarge SA, the world’s biggest cement maker, dropped 8.5 percent to 23.96 euros, the most since January 2009, as a gauge construction companies was among the worst performers of the 19 industry groups in the Stoxx 600. HeidelbergCement AG retreated 9 percent to 24.57 euros, its lowest price in more than two years, while Vinci SA slipped 3.8 percent to 30.58 euros.

--Editor: 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 in London at arummer@bloomberg.net;


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