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European Stocks Post Biggest Weekly Drop in Eight Months

May 18, 2012

European stocks posted the biggest weekly drop since September as Greece moved closer to a possible exit from the euro and concern mounted that Spanish banks will need rescue.

A gauge of lenders slumped for the third week, as Banco Espirito Santo SA (BES) lost the most since at least 1993. Bankia SA lost 15 percent. Opap SA (OPAP) closed in Athens trading with the biggest slide since it sold shares to the public in 2001, after first-quarter profit decreased 21 percent.

The Stoxx Europe 600 Index (SXXP) fell 5.2 percent to 238.88 this week. The gauge has tumbled 12 percent since this year’s high on March 16 as Greek leaders failed to form a government after elections, squabbling over austerity measures.

“The markets are signaling a risk-off attitude and signs of fatigue regarding the question about what to do with Greece are evident,” said Ben Hauzenberger, a Zurich-based fund manager at Swisscanto Asset Management AG, which oversees $53 billion. “Investors are wondering what will happen to the euro in the case of a Greek exit and which countries could follow in its footsteps.”

National benchmark indexes fell in all the 18 western European markets this week. The U.K.’s FTSE 100 (UKX) declined 5.5 percent. France’s CAC 40 lost 3.9 percent and Germany’s DAX slid 4.7 percent. Greece’s ASE Index plunged 10 percent.

Greek Deadlock

Greece’s President Karolos Papoulias failed to secure agreement on a unity government that could have avoided new elections. He swore in a caretaker government led by Panagiotis Pikrammenos.

The new vote, set for June 17, follows inconclusive elections that propelled the Syriza group, which opposes austerity measures required for an international bailout, into second place. Most opinion polls have suggested that Syriza may build on that support in the rerun.

“If Greece -- and this is the will of the great majority - - wants to stay in the euro, then they have to accept the conditions,” German Finance Minister Wolfgang Schaeuble said in Brussels on May 15. “Otherwise it isn’t possible. No responsible candidate can hide that from the electorate.”

Greece’s credit rating was downgraded one level to CCC from B- by Fitch Ratings on May 17.

Separately, the European Central Bank said it suspended lending to some Greek banks to limit its risk. President Mario Draghi signaled the ECB won’t compromise on key principles to keep Greece in the euro area.

Spanish Downgrades

Moody’s Investors Service downgraded 16 Spanish banks on May 17, citing the nation’s recession, reduced funding access for lenders and deterioration in loan quality that will spread beyond real estate to household and company loans.

Spain’s borrowing costs rose at its bond auction that day as it sold the maximum amount of notes targeted and its 10-year bond yields approached levels that drove Greece and Portugal into bailouts.

Spanish Deputy Economy Minister Fernando Jimenez Latorre denied speculation that Bankia (BKIA), the lender with the biggest domestic asset base, was seeing a deposit flight. Bankia said in a regulatory filing that changes in the deposit level in the first half of May “have a substantially seasonal nature” and that it doesn’t expect “substantial changes” in coming days.

Euro-Area Economy

Elsewhere, a report showed that gross domestic product in the 17-nation euro area stagnated in the first quarter compared with the final three months of 2011, according to the European Union’s statistics office in Luxembourg. The median forecast of economists surveyed by Bloomberg had called for a 0.2 percent contraction. Germany’s economy expanded 0.5 percent, compared with the 0.1 percent median estimate of economists in a separate survey.

Banco Espirito Santo sank 22 percent, as the Stoxx 600 Banks Index tumbled 8.7 percent.

Bankia plunged 15 percent after El Mundo reported that customers have withdrawn 1 billion euros ($1.27 billion) since May 9, when the government said it will take over the bank. The Spanish lender also said provisions for soured property loans will be 115 times last year’s earnings.

National Bank of Greece lost 15 percent to its lowest price since at least September 1992 as the country’s central bank chief said citizens had withdrawn as much as 700 million euros from Greek banks since May 6.

Italian Banks

UniCredit SpA (UCG) and Intesa Sanpaolo SpA (ISP), the biggest Italian lenders, declined 14 percent and 6.9 percent, respectively, after Moody’s cut the credit ratings of 26 of the nation’s banks.

Opap, Europe’s biggest listed gambling company, retreated 27 percent, the most since at least May 2001, after first- quarter profit fell 21 percent on higher net-interest expenses and lower sales.

Separately, Imerisia reported that the company’s agents have asked for a 30 percent commission on gross winnings from planned video lottery terminal games.

BHP Billiton Ltd. and Rio Tinto Group, the biggest mining companies listed in London, declined 8.6 percent and 11 percent, respectively. Data showed China’s home prices fell in a record number of cities last month and car dealers posted inventory levels that signaled deeper price cuts.

Kesa Electricals Plc (KESA) plunged 15 percent. The owner of the Darty electronics chain said French revenue slumped in the final quarter of the fiscal year as consumers bought fewer televisions after a switchover to digital reception last year.

Nexans SA (NEX), the world’s second-biggest cable maker, dropped 16 percent after Chief Executive Officer Frederic Vincent said business in Libya may not resume until end of the year because of security issues in the country.

Iliad SA (ILD), the broadband provider founded by entrepreneur Xavier Niel, gained 6.5 percent after the company won 2.6 million mobile subscribers in its first 80 days as France’s fourth mobile-network operator. First-quarter sales climbed 29 percent.

Cie. Financiere Richemont SA (CFR) climbed 3.2 percent. The owner of the Cartier brand reported full-year profit that beat analysts’ estimates as sales were boosted by buoyant demand for high-end goods in the Asia-Pacific region.

To contact the reporter on this story: Corinne Gretler in Zurich at

To contact the editor responsible for this story: Andrew Rummer at

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