Bloomberg News

European Stocks Retreat for Second Week After S&P Warning

March 30, 2012

European stocks fell for a second week as Standard & Poor’s said Greece may have to restructure its debt again and a European Central Bank policy maker said a bigger firewall will not solve the fiscal crisis.

Lenders and oil companies led the drop, with Banca Popolare di Milano Scarl (PMI) slumping 14 percent and Total SA (FP) losing 6.1 percent. FirstGroup Plc (FGP) plunged 18 percent after the U.K. bus and train operator said its bus business faced “challenging trading conditions.” Finmeccanica SpA (FNC), Italy’s biggest defense company, rallied 15 percent after forecasting a return to profit in 2012.

The Stoxx Europe 600 Index (SXXP) declined 0.9 percent to 263.32 this past week, even after jumping 1 percent on March 30. The benchmark measure climbed 7.7 percent in the first quarter, its best performance during the first three months of the year since 2006, as the ECB disbursed 1 trillion euros ($1.3 trillion) in three-year loans to the region’s financial institutions and U.S. economic reports beat estimates.

“The markets started the first quarter with a dash, but the finish seems to be a lumbered one as liquidity fuel dries out,” said Manish Singh, the London-based head of investment at Crossbridge Capital, which has more than $2 billion under management. “The same old worries still linger -- slowing gross domestic product growth in Europe and a likelihood of Europe’s sovereign stresses flaring again. However, the selloff in the market is more a case of lack of buyers than eagerness to sell.”

National benchmark indexes dropped in 15 out of 18 western- European markets this past week. France’s CAC 40 Index and the U.K.’s FTSE 100 Index lost 1.5 percent, while Germany’s DAX Index decreased 1 percent.

Greece’s Debt Restructuring

Greece will probably have to restructure its debt again, Moritz Kraemer, head of sovereign ratings at S&P, said at an event on March 28.

There may be “down the road, I’m not predicting today when, another restructuring of the outstanding debt,” he said. “At that time, maybe the official creditors need to come into the boat.”

Euro-area finance ministers, meeting in Copenhagen on March 30, set the maximum lending capacity of the proposed European Stability Mechanism at 500 billion euros ($667 billion) and the combined lending limit of the ESM and the temporary fund -- the European Financial Stability Facility -- at 700 billion euros.

Euro-Area Firewall

In addition to the 102 billion euros already paid to support current rescue programs, the new limit takes the total size of the firewall to 800 billion euros, the Eurogroup said in a statement.

“Robust firewalls have been established,” the ministers said in the statement. “This comprehensive strategy has paid off and led to a significant improvement in market conditions.”

ECB Governing Council member Jens Weidmann said on March 28 that increasing the rescue funds’ capacity won’t solve the debt crisis.

“Just like the ‘Tower of Babel,’ the wall of money will never reach heaven,” he said in a speech at Chatham House in London. “If we continue to make it higher and higher, we will, in fact, run into more worldly constraints,” which might include setting “incentives that lead to new problems in the future.”

A gauge of lenders was the worst performer of the 19 industry groups in the Stoxx 600 (SXXP) this past week, slumping 3.4 percent. Banca Popolare di Milano, the oldest Italian cooperative bank, plunged 14 percent after posting a net loss of 614 million euros in 2011 after a goodwill writedown of 336 million euros in the fourth quarter. The lender made a profit in 2010.

Monte dei Paschi

Banca Monte dei Paschi di Siena SpA (BMPS) tumbled 11 percent after posting a record loss of 4.99 billion euros in its fourth quarter. Italy’s third-largest lender took 4.5 billion euros of writedowns for acquisitions including its purchase of Banca Antonveneta in 2007.

National Bank of Greece SA (ETE), the Mediterranean nation’s biggest lender, slid 17 percent. Spain’s Banco Sabadell SA lost 9 percent.

Total declined 6.1 percent as Europe’s third-largest oil company sought to stop a gas leak on its Elgin platform in the U.K. North Sea. The rig supplied more than 1 percent of Britain’s gas last year, according to the Department of Energy and Climate Change.

Petroplus Holdings AG, formerly Europe’s largest independent oil refiner, plunged 71 percent this past week after saying that it plans to delist its shares in May. The company also said a Swiss court granted it bankruptcy proceedings for six months until Sept. 27, with the company’s stock expected to stop trading on May 11.

FirstGroup Plummets

FirstGroup slumped 18 percent, its biggest weekly retreat in three years. The company predicted operating profit at its bus unit of about 8 percent of sales in the financial year ending 2013. That compared with analysts’ estimates of about 12 percent, Bank of America Corp. said in a note on March 29.

Finmeccanica surged 15 percent after it forecast a return to profit this year after posting a net loss of 2.35 billion euros for 2011. Chief Executive Officer Giuseppe Orsi said that he sees no more exceptional losses in the future. The company forecast earnings before interest, taxes and amortization of about 1.1 billion euros in 2012, higher than the average analyst estimate of 935 million euros.

Separately, Il Sole 24 Ore reported that Hitachi Ltd. has held advanced talks with Finmeccanica to buy 50 percent of AnsaldoBreda SpA and 29 percent of Ansaldo STS SpA.

The mean daily volume of shares changing hands on the Stoxx 600 this past week was 3.6 percent lower than the average over the last 12 months, according to data compiled by Bloomberg. The VStoxx Index (V2X), which measures the cost of option prices on the Euro Stoxx 50 index, rose 4.1 percent this past week.

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 at arummer@bloomberg.net


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