Bloomberg News

German Stocks Drop Most in a Month as Greek Debt Talks Continue

January 30, 2012

Jan. 30 (Bloomberg) -- German stocks dropped the most in one month, led by lenders’ shares, as Greece struggled to agree a debt write-off plan with its creditors and Portugal’s credit- default swaps rose to a record price.

Deutsche Bank AG and Commerzbank AG both declined more than 3.5 percent. Kloeckner & Co. SE slumped after Chief Executive Officer Gisbert Ruehl told Financial Times Deutschland that demand for steel will drop. Hochtief AG fell after saying that it will report a wider loss for 2011 than it had predicted.

The DAX dropped 1 percent to 6,444.45 at the close in Frankfurt for its biggest retreat since Dec. 28. The gauge has still rallied 9.3 percent this year amid speculation the global economy will withstand the impact of the euro area’s debt crisis and as central banks acted to fuel growth. The broader HDAX Index lost 1.1 percent today.

“We see Portugal as a big problem; we believe they are going to be the second Greece,” said Markus Neuburger, head of sales at Donner & Reuschel in Munich. “Our customers have been cautious and we don’t see much interest in equities yet.”

European Union leaders gathered for their first summit of 2012 today as they continued their efforts to control the euro area’s debt crisis. Greece’s Prime Minister Lucas Papademos has yet to strike a debt deal that may see creditors lose about 69 percent of the net-present value of the country’s debt, said a person familiar with the talks.

Portugal’s credit-default swaps rose to a record today, according to CMA, amid concern that investors will have to take losses on their bond holdings if Greece agrees a debt deal with its creditors.

Bonds Drop

Portugal’s government bonds declined, pushing the yield on the 10-year security up 217 basis points to 17.39 percent. Two- year note yields advanced 383 basis points to 21.01 percent.

“When Greece hit these levels, real talk of debt restructuring began to take hold,” Padhraic Garvey, a fixed- income strategist at ING Bank NV in Amsterdam, wrote in a note today. “Portugal has about six months to prove that it is not another Greece, else its fate could likely be sealed by negative market price action.”

Deutsche Bank, Germany’s biggest lender, fell 3.8 percent to 32.26 euros. Commerzbank, the country’s second largest, slipped 4 percent to 1.81 euros.

Fitch Ratings downgraded the credit grades of Italy, Spain and three other euro-area countries on Jan. 27, saying the five nations lacked financing flexibility.

Kloeckner, ThyssenKrupp

Kloeckner, the German steel trader operating in 15 countries in Europe and North America, tumbled 7.3 percent to 10.85 euros. Steel demand in Europe may drop 5 percent or more this year, FT Deutschland cited Ruehl as saying. Today’s economy is more threatening to the industry than the financial crisis of 2008, Kloeckner’s CEO also said.

ThyssenKrupp AG, Germany’s largest steelmaker, lost 3.6 percent to 21.11 euros. The company may be nearing a sale of its Inoxum stainless steel unit to Finland’s Outokumpu Oyj in a deal valued at about 2.7 billion euros ($3.5 billion), Die Welt reported in a pre-release of an article to be published tomorrow, citing unidentified people close to the company.

Salzgitter AG, Germany’s second-biggest steelmaker, declined 5.1 percent to 45.47 euros.

Hochtief tumbled 5.8 percent to 48.07 euros. The builder, based in Essen, Germany, said it will have a wider loss than it had forecast for last year because of additional charges in the fourth quarter at its Australian subsidiary and costs related to the departure of executives.

RWE, Praktiker Gain

RWE AG, Germany’s second-largest power utility, advanced 1.2 percent to 29.15 euros, its fifth straight gain. Morgan Stanley analysts increased their recommendation on the shares to “overweight,” raising their price estimate to 36 euros from 29 euros. The brokerage also said that analyst estimates and RWE’s own forecasts will “increase materially.”

“RWE is now one of the cheapest integrated utilities on our new numbers,” the bank wrote in a report. “Our increases reflect a more focused disposal program and the unique fuel mix.”

Praktiker AG surged 9.2 percent to 2.26 euros. Germany’s third-largest home-improvement retailer said on Jan. 28 that it had reached an agreement with a group of banks led by Commerzbank to transfer bilateral credit lines into a joint- credit arrangement.

--With assistance from Adria Cimino in Paris. Editor: Will Hadfield

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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