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European Stocks Fall as EU Leaders Hold Summit

June 28, 2012

European Stocks Retreat Before EU Summit as Debenhams Declines

Debenhams Plc dropped 1.6 percent after the retailer reduced its forecast for profitability. Photographer: Simon Dawson/Bloomberg

European stocks retreated after Spain’s bond yields surged and Germany’s unemployment rate rose more than forecast as a two-day summit of the region’s leaders started in Brussels.

Barclays Plc (BARC) plunged 16 percent after fines for falsifying London interbank-offered rate submissions sparked speculation lawsuits will follow. Commerzbank AG (CBK) sank 7.2 percent as the lender issued new shares.

The Stoxx Europe 600 Index slid 0.5 percent to 244.67 at the close in London, after earlier dropping as much as 1.3 percent. The benchmark measure has fallen 10 percent from its high in March, paring its gain for the year to 0.1 percent, as the euro area’s sovereign-debt crisis threatened a slowdown in global growth. The volume of shares traded on the gauge was 9.1 percent higher than the average of the last 30 days, according to data compiled by Bloomberg.

“We expect these discussions to draw a road map for fiscal, financial and political union, but we do not anticipate any major decisions on concrete short-term measures to reduce market stress beyond what has already been agreed,” wrote Guillermo Felices and Sara Yates, strategists at Barclays in London, in a report to clients. “We are not alone in having limited expectations.”

Stocks retreated as Spanish bonds declined for the fourth day, sending the yield on benchmark 10-year securities to more than 7 percent earlier today, for the first time since June 20.

German Unemployment

German unemployment climbed in June for the fourth month this year. The number of people out of work in Germany rose a seasonally adjusted 7,000 to 2.88 million, the Federal Labor Agency said. Economists had predicted an increase of 3,000, according to the median of 30 estimates in a Bloomberg survey.

European Council President Herman Van Rompuy, European Central Bank President Mario Draghi and European Commission President Jose Barroso have prepared a 10-year road map for the euro area, which they will discuss at today’s summit.

The blueprint includes common banking supervision, deposit insurance and a “criteria-based and phased” move toward joint debt issuance. The document also suggests that the EU impose upper limits on annual budgets and debt levels for the 17 nations that use the euro.

National benchmark indexes declined in 9 of the 18 western- European markets. The U.K.’s FTSE 100 Index lost 0.6 percent, France’s CAC 40 Index slid 0.4 percent and Germany’s DAX Index retreated 1.3 percent.

Barclays Slumps

Barclays plunged 16 percent to 165.6 pence, its biggest decline since March 2009, as a gauge of European lenders posted the biggest drop on the Stoxx 600 (SXXP), losing 2.4 percent.

Chief Executive Officer Bob Diamond came under pressure to resign after the second-largest bank by assets was fined $451 million for attempting to manipulate the inter-bank lending rate, know as Libor.

“We expect that the cost of lawsuits related to Libor manipulation will dwarf the fines imposed on Barclays,” said Sandy Chen, a banks analyst at Cenkos Securities Plc in London. “Since RBS, HSBC and LLoyds have also been named in lawsuits, we expect they will also face significant fines and damages.”

Royal Bank of Scotland Group Plc (RBS) declined 11 percent to 206.4 pence, HSBC Holdings Plc (HSBA) slid 2.6 percent to 558.2 pence and Lloyds Banking Group Plc (LLOY) sank 3.9 percent to 29.94 pence.

Spanish Banks

Spanish and Italian lenders also retreated as Spanish bond yields climbed and Italy paid the most to sell 10-year debt since December at a bond auction.

Italy sold 5.42 billion euros ($6.7 billion) of five- and 10-year bonds, near the maximum 5.5 billion-euro target for the sale. The Treasury priced the 10-year debt to yield 6.19 percent, up from 6.03 percent at the previous auction on May 30.

Bankia decreased 3.9 percent to 90 euro cents and Banco Popular slid 2.6 percent to 1.69 euros in Madrid. Banca Monte dei Paschi di Siena SpA (BMPS) fell 3.5 percent to 18.5 euro cents and Banca Popolare di Sondrio Scarl (BPSO) lost 1.6 percent to 4.65 euros.

In Germany, Commerzbank dropped 7.2 percent to 1.26 euros after the nation’s second-largest lender issued about 176.5 million euros in new shares to satisfy bonuses awarded last year. The capital increase also strengthens the bank’s core Tier I capital by 213.8 million euros as the Basel 3 regulatory requirements come into force globally.

Ladbrokes, Vivendi

Ladbrokes Plc (LAD) tumbled 12 percent to 152.7 pence, its biggest slide since October 2008, after the gambling company said a decline in online profit will be worse than predicted because of poor gambling margins and delays to technology upgrades. Ladbrokes said digital profit in the first half will drop to half the amount it generated a year earlier.

Vivendi jumped 5.5 percent to 14.20 euros after people familiar with the matter said Chief Executive Officer Jean- Bernard Levy intends to step down.

Levy, 57, plans to depart after seven years at the helm of the Paris-based telecommunications and media company, said the people, who asked not to be identified before an announcement.

Ageas (AGS) jumped 9 percent to 1.47 euros after the insurer formerly known as Fortis said it will receive a one-off payment of 400 million euros from ABN Amro Group NV in a settlement of legal proceedings concerning mandatory convertible securities.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

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

Debenhams Plc dropped 1.6 percent after the retailer reduced its forecast for profitability. Photographer: Simon Dawson/Bloomberg June 28 (Bloomberg) -- Jens Larsen, chief European economist at RBC Capital Markets, discusses fiscal union in the region and the size of the European Stability Mechanism. He speaks with Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg) June 28 (Bloomberg) -- German Chancellor Angela Merkel, New York University professor Nouriel Roubini and UBS AG's global head of asset allocation Stephane Deo discuss Germany's opposition to a joint euro-area bond. Olivetree Securities strategist Simon Maughan and Official Monetary and Financial Institutions Forum Co-Chairman David Marsh also speak. (Source: Bloomberg)

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