Bloomberg News

U.K. Stocks Retreat on BP Earnings, German ESM Comments

July 31, 2012

U.K. stocks retreated, paring their second monthly advance, as BP Plc (BP/) reported results that missed estimates and Germany’s Finance Ministry said it sees no need to give Europe’s permanent bailout fund a banking license.

BP lost 4.4 percent, the most in eight months, after Europe’s second-largest oil company posted a net loss for the second quarter. Barclays Plc (BARC) led a retreat in banks, falling 1.5 percent. CRH Plc (CRH) tumbled 5.8 percent, the most since November.

The FTSE 100 Index (UKX) lost 58.35 points, or 1 percent, to 5,635.28 at the close in London, trimming this month’s gain to 1.2 percent. The gauge has climbed 7.1 percent from its 2012 low on June 1, boosted by pledges from European Central Bank President Mario Draghi to preserve the euro. The broader FTSE All-Share Index also fell 1 percent today, while Ireland’s ISEQ Index retreated 0.9 percent.

“Confidence and sentiment are being slowly eroded away by the dire state of affairs in the periphery” of Europe, said Simon Denham, managing director at Capital Spreads in London. “Despite the markets getting excited about the prospects of fresh stimulus, the trickle down to confidence and the man on the street won’t materialize for months to come.”

Stocks extended losses after Germany’s Finance Ministry said the rules of the European Stability Mechanism don’t foresee a banking license to allow refinancing at the European Central Bank. They said they are holding no talks on the topic.

ESM License

ECB council member Ewald Nowotny earlier this month said there were arguments in favor of giving the ESM a banking license. Granting a permit to Europe’s permanent bailout fund would give it access to ECB lending, easing concerns that its 500 billion-euro ($616 billion) cash pot won’t be enough if Spain or Italy require aid.

In the U.S., Federal Reserve Chairman Ben S. Bernanke will this week probably refrain from announcing a third round of large-scale asset purchases, according to the median economist estimate in a Bloomberg News survey. The Federal Open Market Committee, which begins its two-day meeting today in Washington, is more likely to wait until a meeting on Sept. 12-13 to unveil plans to buy $600 billion in housing and government debt, according to the survey.

BP slid 4.4 percent to 425.05 pence after reporting a net loss of $1.4 billion, including impairment charges totaling $4.8 billion as the company wrote down the value of U.S. assets.

Adjusted quarterly earnings fell to $3.7 billion from $5.7 billion a year earlier, the company said. The average estimate of analysts in a Bloomberg survey had called for a profit of $4.6 billion.

Banks Drop

Barclays paced a selloff banks, falling 1.5 percent to 168 pence, Royal Bank of Scotland Group Plc (RBS) dropped 3.8 percent to 213.7 pence and HSBC Holdings Plc (HSBA), Europe’s largest bank, slid 1.7 percent to 533.9 pence.

The Wall Street Journal said RBS has held talks with officials about settling interest-rate rigging allegations. The report cited unidentified people familiar with the matter.

CRH, the world’s second-biggest building-materials maker, tumbled 5.8 percent to 1,160 pence in London, falling for the first time in five days.

German competitor HeidelbergCement AG sank 1.9 percent in Frankfurt after saying there is no medicine against “significant” market weakness in Europe.

LSL Property Services Plc (LSL) plunged 13 percent to 220 pence, the largest drop since 2008, after reporting a loss and saying it plans to sell real estate to help pay for professional indemnity claims stemming from valuations.

Vedanta Resources Plc (VED) led advancing shares, gaining 5.2 percent to 976 pence. Earnings before interest, taxes, depreciation and amortization increased to $1.34 billion in the three months through June, from $1.05 billion a year earlier, the company said, as newly acquired Cairn India Ltd. added to profit.

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

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


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