Bloomberg News

European Banks Reverse Gains as Spanish Bond Yields Surpass 7%

June 18, 2012

European banking stocks reversed their gains as the election victory by pro-bailout parties in Greece failed to dispel concern that the sovereign debt crisis is spreading.

The 43-company Bloomberg Europe Banks and Financial Services Index fell as much 1.5 percent, the most since June 1, after climbing as much as 2.3 percent as the market opened. It was down 0.5 percent at noon Paris time. Banks in Spain and Italy led the decline, with Bankia SA (BKIA) dropping 6.5 percent to 86 cents and Banca Popolare dell’Emilia Romagna Scrl dropping 2.7 percent to 3.74 euros.

Spain’s 10-year bond yield surged past 7 percent today and reached 7.14 percent, the highest since the euro was introduced in 1999, on concern that the nation may be shut out of government bond markets.

“The Greek elections aren’t easing concerns about the debt crisis in the euro zone,” Mario Spreafico, chief investment officer of Schroeder Investment in Italy, who manages about 1 billion euros ($1.3 billion), said by phone. “Spanish bond spreads signal that the worst is not over, and a sustainable path to gain investors’ confidence is still far from been reached.”

Greek Election

The New Democracy and Pasok parties won enough seats to form a majority in the 300-member parliament, according to an official projection. The prospect that anti-bailout leader Alexis Tsipiras and his Syriza party would win rattled markets last week.

Greek lenders were outperformers today in the wake of the vote. National Bank of Greece SA was the best performer in the Bloomberg banks index, jumping 17 percent. Optimism about the election result may not last, said Dirk Hoffmann-Becking and Carlo Tommaselli of Societe Generale SA. (GLE)

“Even if a government is formed and negotiations with the euro zone are brought to a conclusion, the issue remains that New Democracy’s leadership is not a pro-austerity party,” the analysts wrote in a report today. “Concerns remain that implementation of even the more modest austerity measures will fall short of expectations.”

To contact the reporter on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net Francesca Cinelli in Milan at fcinelli@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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