Bloomberg News

European Stocks Retreat After ECB Damps Bond-Buying Speculation

December 09, 2011

Dec. 8 (Bloomberg) -- European stocks dropped the most in two weeks as the European Central Bank damped speculation it would step up purchases of government bonds and regulators said the lenders need to raise more capital than previously forecast.

Commerzbank AG and Intesa Sanpaolo SpA retreated more than 8 percent after the European Banking Authority said Europe’s lenders will need to boost capital by 114.7 billion euros ($153 billion). PSA Peugeot Citroen and Fiat SpA led a decline in auto shares. BioMerieux SA tumbled 11 percent as the maker of medical tests said it may not meet its sales-growth target.

The Stoxx Europe 600 Index slid 1.5 percent to 237.71 at the close of trading. The gauge earlier climbed as much as 1 percent after the ECB cut its benchmark interest rate by a quarter percentage point, offered banks as much money as they need for three years and loosened collateral rules for refinancing operations to ease strains in credit markets. The measure has dropped 14 percent this year amid concern the euro- area debt crisis will derail the region’s economic recovery.

“The market now thinks that there won’t be a solution in the next three days, and in addition, there won’t be any concrete action,” said John Plassard, director at Louis Capital Markets in Geneva. “There was not even the surprise of lowering the rates by 50 basis points, which would really have meant that the ECB is doing everything in its power to restart lending.”

Benchmark Gauges

National benchmark indexes dropped in all of the 17 western European markets that were open today, except Iceland. France’s CAC 40 retreated 2.5 percent and the U.K.’s FTSE 100 lost 1.1 percent. Germany’s DAX Index sank 2 percent. Austrian markets were closed for a holiday.

The ECB cut interest rates by 25 basis points, or a quarter percentage point, to 1 percent today, matching a record low. It introduced new three-year loans for banks and loosened the collateral criteria it imposes when lending by making credit claims such as bank loans eligible and reducing the rating threshold on asset-backed securities.

Stocks erased their gains as ECB President Mario Draghi said he did not necessarily signal that the central bank would step up government bond purchases when speaking before lawmakers in Brussels last week. He said he was “kind of surprised by the implicit meaning” that was given to his comments when he said the ECB could follow faster fiscal union with “other elements.”

‘Big Bang’ Solution

Separately, German Chancellor Angela Merkel said that there’s no “big bang” solution to the debt crisis. A European Union summit starting today will be “one step” toward resolution, she added.

European leaders meet at 7:30 p.m. in Brussels to hammer out a solution to the sovereign-debt crisis, which has left Germany and France facing the threat of losing their AAA credit ratings from Standard & Poor’s.

The Stoxx 600 extended its decline in the final hour of trading as documents from Europe’s banking regulator obtained by Bloomberg News showed the region’s banks will need to raise 114.7 billion euros in fresh capital as part of measures introduced in response to the debt crisis.

German banks need 13.1 billion euros and Italian banks 15.4 billion euros in core tier 1 capital, the European Banking Authority said in the document. European lenders will have to raise a total of 8 billion euros more than previously estimated by the EBA in October.

Banks Sink

Banks declined, with Commerzbank and Deutsche Bank AG, Germany’s biggest lenders, losing 9.5 percent to 1.28 euros and 4.3 percent to 28.25 euros, respectively. Italy’s Intesa Sanpaolo plummeted 8.9 percent to 1.18 euros and Societe Generale SA, France’s second-largest lender, retreated 4.5 percent to 19.10 euros.

Mediobanca SpA plunged 10 percent to 4.56 euros, the largest decline since at least 1988. The bank, one of the biggest creditors of Italian insurer Fondiaria-Sai SpA, is urging the company to raise as much as 600 million euros in capital to improve ratios and strengthen finances, two people with knowledge of the matter said.

Peugeot slumped 7.3 percent to 12.46 euros as Thierry Huon, an analyst at Exane BNP Paribas SA, cut the French carmaker to “neutral” from “outperform.”

A gauge of European carmakers was the worst performer of the 19 industry groups in the Stoxx 600, sliding 3.4 percent. Fiat dropped 3.3 percent to 3.77 euros while Bayerische Motoren Werke AG, the world’s largest maker of luxury vehicles, sank 3.7 percent to 53.61 euros.

BioMerieux, Finmeccanica

BioMerieux tumbled 11 percent to 55.18 euros, the largest drop since it first sold shares in 2004, after the company late yesterday said it may miss its sales target.

Finmeccanica SpA, Italy’s biggest arms company, plunged 9.4 percent to 3.02 euros after Goldman Sachs Group Inc. reaffirmed its “sell” recommendation on the shares and cut its price estimate by 44 percent to 2.50 euros.

Banco Sabadell SA gained 4.3 percent to 2.86 euros after agreeing to acquire stricken Spanish lender Caja de Ahorros del Mediterraneo. Sabadell said the purchase will save it more than 300 million euros a year, increase its client base to 5 million and boost per-share earnings.

Macquarie Group Ltd. raised the stock to “neutral” from “underperform.”

--Editors: Andrew Rummer, Srinivasan Sivabalan

To contact the reporters on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net; 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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