Bloomberg News

German Stocks Fall for First Day in Seven; Deutsche Bank Drops

October 13, 2011

Oct. 13 (Bloomberg) -- German stocks declined for the first day in seven as the European Central Bank warned the forced involvement of the private sector in euro-area bailouts is a risk to financial stability.

Deutsche Bank AG dropped 5.6 percent after a report that Germany’s biggest lender would fail a European Banking Authority stress test currently being discussed. EON AG and RWE AG slid as Enel SpA, Italy’s biggest power company, said it will be forced to review dividends and spending.

The benchmark DAX Index fell 1.3 percent to 5,914.84 at the close in Frankfurt. The measure has dropped 21 percent from this year’s high on May 2 amid concern global economic growth is slowing and policy makers are struggling to contain the debt crisis. The broader HDAX Index declined 1.2 percent today.

“The ECB has strongly advised against all concepts that are not purely voluntary or that have elements of compulsion, and has called for the avoidance of any credit events and selective default or default,” the Frankfurt-based central bank said in its monthly bulletin today. Private sector involvement will affect the balance sheets of banks in other euro-area countries as well as the country concerned, it said.

“Any disagreements on how we come out of this crisis will generate pressure on markets and specifically on the financial sector,” said Luis Benguerel, a trader at Interbrokers in Barcelona, Spain. “We are coming from a solid rally in recent days on the hopes that the debt crisis may be nearing a resolution. Anything that may divert that process will generate renewed instability.”

Stress Test

Deutsche Bank retreated 5.6 percent to 27.65 euros. The German lender would fail a stress test currently being discussed, Reuters reported, without saying where it got the information. The company would need about 9 billion euros ($12 billion) to reach a minimum core tier 1 ratio of 9 percent under an adverse stress scenario, Reuters reported, citing unidentified people familiar with the figures.

At least 66 of Europe’s biggest banks would fail a revised European Union stress test and need to raise about 220 billion euros ($302 billion) of capital, Credit Suisse AG analysts said.

Deutsche Bank will “do everything” not to take money from the state as part of assistance efforts for the European financial sector, Chief Executive Officer Josef Ackermann said today in a speech in Berlin.

Smaller rival Commerzbank AG declined 4.8 percent to 1.76 euros. Allianz AG, Europe’s biggest insurer, lost 2.6 percent to 78.81 euros.

EON, RWE Drop

EON dropped 3.3 percent to 17.53 euros. RWE slid 3.2 percent to 30.32 euros. Germany’s two largest utilities fell as Enel said it will be forced to review dividends and spending to meet debt reduction targets after the government increased taxes on energy companies.

MTU Aero Engines Holding AG rose 3.1 percent to 49.44 euros. The company plans to increase its stake in a venture making engines for the Airbus A320, as part of a reshuffle in ownership after Rolls-Royce Plc said it would sell its stake in the partnership.

Investors are paying the biggest premium since February 2008 to insure against losses in Germany’s stock market as the nation’s cost to shield Europe in the debt crisis grows.

Implied volatility for iShares MSCI Germany Index Fund contracts expiring in three months is 1.36 times higher than the level for the iShares MSCI EAFE Index Fund, which tracks nations throughout Europe, data compiled by Bloomberg show. The ratio has climbed from the 2011 average of 1.15 even as the DAX Index rose 15 percent since Oct. 4, the biggest gain since 2008.

--With assistance from Adria Cimino in Paris. Editors: Srinivasan Sivabalan, Andrew Rummer

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net

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


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