Bloomberg News

European Stocks Decline on Concern Economy Will Shrink in 2012

February 24, 2012

Feb. 23 (Bloomberg) -- Stocks in Europe declined for a third day as the European Commission said the region’s economy will shrink this year, dragged down by Italy and Spain.

Commerzbank AG tumbled 6.6 percent after saying it won’t pay a dividend for 2011 and will ask investors to swap some hybrid instruments for shares. Fiat SpA led a drop among carmakers. Swiss Re Ltd., the world’s second-biggest reinsurer, gained after raising its shareholder payout.

The Stoxx Europe 600 Index lost 0.2 percent to 264.08 at the close of trading, after earlier rising as much as 0.4 percent and falling as much as 0.7 percent. The gauge has rallied 8 percent this year as euro-area leaders took measures to contain the region’s debt crisis and U.S. economic data topped estimates.

“The European Commission comments remind us that the situation in the eurozone is not good at all,” said Stephane Ekolo, chief European strategist at Market Securities in London. The earnings scorecard, which showed that one out of two companies in the region reported earnings below analyst estimates, also weighed on sentiment, he said. “Overall, the earnings season hasn’t been a good one.”

The 17-nation euro economy will contract 0.3 percent in 2012, the European Commission said, abandoning a November forecast for a 0.5 percent growth. The commission expects the economy to shrink 1.3 percent in Italy and 1 percent in Spain.

Economic Sentiment

“Although growth has stalled, we are seeing signs of stabilization in the European economy,” European Union Economic and Monetary Commissioner Olli Rehn said in the introduction to the quarterly forecasts today in Brussels. “Economic sentiment is still at low levels, but stress in financial markets is easing.”

In Germany, the Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, climbed to 109.6 in February from 108.3 in January. That’s the fourth straight gain and the highest reading since July. Economists predicted an increase to 108.8, according to the median estimates in a Bloomberg News survey.

German Chancellor Angela Merkel indicated she will maintain pressure on Greece to meet debt-cutting pledges required for its second financial rescue, saying fiscal discipline is needed to hold the euro area together.

“People are getting skeptical that Greece will stick to its commitments in the future,” Ekolo of Market Securities said.

Rescue Package

Euro-area finance ministers this week approved a 130 billion-euro ($172 billion) aid package for Greece and persuaded investors to provide more debt relief to the nation.

Of the 204 companies on the Stoxx 600 that have reported quarterly earnings so far, 102 have missed analyst estimates, while 90 have surpassed them, according to data compiled by Bloomberg.

Hope in the market “will be crushed,” Albert Edwards, a global strategist at Societe Generale SA, wrote in a note. “To me this feels no different from the start of 2011 but with one major difference. Profits are sliding instead of rising robustly.”

National benchmark indexes retreated in 12 of the 18 western European markets. Germany’s DAX dropped 0.5 percent, while France’s CAC 40 was little changed. The U.K.’s FTSE 100 gained 0.4 percent.

Commerzbank Capital Increase

Commerzbank fell 6.6 percent to 1.93 euros. Germany’s second-largest lender said it won’t pay a dividend for 2011 and will ask investors to swap hybrid capital instruments trading below face value for new shares, in a plan to boost its financial strength. The measures could increase the core Tier 1 capital by more than 1 billion euros ($1.33 billion), the bank said.

Vallourec SA, a French producer of steel pipes for the oil and gas industry, tumbled 6.4 percent to 52.95 euros. The company reported a fourth-quarter profit that beat analyst estimates and forecast a lower profit margin this year.

Deutsche Telekom AG lost 3 percent to 8.70 euros. The company forecast earnings will fall further this year after posting a 1.34 billion-euro quarterly net loss because of writedowns on T-Mobile USA and its Greek business.

Earnings before interest, taxes, depreciation and amortization excluding some items will be about 18 billion euros, or 3.7 percent less than in 2011, Germany’s largest phone company said today. That compares with the 18.5 billion-euro average analyst estimate compiled by Bloomberg.

Automakers Retreat

A gauge of carmakers dropped 1.7 percent, for the biggest decline among the 19 industry groups on the Stoxx 600. Fiat lost 4.5 percent to 4.57 euros. Preferred shares of Volkswagen AG, Europe’s largest automaker, slid 2.3 percent to 139.15 euros. Daimler AG, the world’s third-largest maker of luxury cars, slipped 1.9 percent to 46.93 euros.

Swiss Re rose 2.6 percent to 54.40 francs. The world’s second-biggest reinsurer may use excess capital to pay a special dividend for this year, after increasing its 2011 payout as fourth-quarter profit exceeded analyst estimates.

The company posted a net income of $983 million following a loss of $725 million in the year-earlier period. That beat the $299 million average estimate of 16 analysts surveyed by Bloomberg.

Natixis SA, the investment-banking and asset-management unit of Groupe BPCE, jumped 8.4 percent to 2.53 euros. The bank said fourth-quarter profit fell 32 percent to 302 million euros after it wrote down Greek sovereign debt. That compares with the 215 million-euro average estimate of five analysts surveyed by Bloomberg.

Cookson Group Plc, the world’s biggest maker of ceramic linings for metal smelters, advanced 4.7 percent to 670 pence. The company said it will sell its U.S. precious metals business to a unit of Berkshire Hathaway Inc.

--With assistance from Owen Thomas, Mark Barton and Srinivasan Sivabalan in London and Peter Levring in Copenhagen. Editors: Srinivasan Sivabalan, Andrew Rummer

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

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


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