Bloomberg News

European Stocks Decline as Lloyds Retreats on Compensation Costs

February 03, 2014

European stocks declined, following their worst start to a year since 2010, as Lloyds Banking Group Plc dragged a gauge of banks lower and a report showed U.S. manufacturing expanded at the slowest pace in eight months.

Lloyds posted its biggest drop since September 2012 after saying it set aside 1.8 billion pounds ($2.9 billion) in the fourth quarter to cover the cost of compensating customers for mis-sold payment protection insurance. Colruyt SA tumbled the most in more than two years after cutting its annual profit forecast. Ryanair Holdings Plc (RYA) rallied the most in eight months after saying more people have booked flights for this summer than at this stage a year ago.

The Stoxx Europe 600 Index fell 1.3 percent to 318.21 at the close of trading, dropping to its lowest level in six weeks. The benchmark slid 1.8 percent in January. It has slumped 5.3 percent from a six-year high on Jan. 22 as the Argentinian government’s decision to allow the peso to devalue triggered a rout in emerging-market currencies.

“A correction was certainly overdue by all market standards, but there’s no reason to be overly concerned quite yet,” said Teis Knuthsen, chief investment officer at Saxo Bank A/S’s private-banking unit in Hellerup, Denmark. “A combination of slower growth in China and currency turbulence in Argentina has brought emerging-market panic to new highs. This year won’t be as bullish as 2013 and you’re going to get a few months of greater volatility.”

The VStoxx Index, which measures expected volatility on the Euro Stoxx 50 Index using options prices, rose 10.1 percent to 24.02, its highest level since June 25.

U.S. Manufacturing

In the U.S., the Institute for Supply Management said its manufacturing gauge fell to 51.3 in January from a revised 56.5 in December. Economists surveyed by Bloomberg had projected the index would drop to 56. Numbers above 50 mean activity climbed.

In China, a release showed manufacturing output slowed in January to its lowest level in six months. The purchasing managers’ index fell to 50.5 from 51, the National Bureau of Statistics and China Federation of Logistics and Purchasing said Feb. 1. A separate report today showed British manufacturing also expanded last month at a slower pace than in December, missing the median economist prediction.

National benchmark indexes fell in 14 of the 18 western-European markets today. Germany’s DAX slid 1.3 percent and France’s CAC 40 retreated 1.4 percent, while the U.K.’s FTSE 100 declined 0.7 percent.

Lloyds Slides

Lloyds retreated 4 percent to 79.99 pence. The lender, which is 33 percent-owned by the U.K. government, also said it will not apply to the Prudential Regulatory Authority to resume dividend payouts until the second half of this year.

Julius Baer Group Ltd. declined 5.9 percent to 41.44 Swiss francs after saying net new money climbed 4 percent to 7.6 billion francs ($8.4 billion) in 2013. The wealth manager said in November that it would target annualized growth of 4 percent to 6 percent.

A gauge of lenders on the Stoxx 600 fell 2.6 percent, contributing the most to today’s slide. Banco Bilbao Vizcaya Argentaria SA (BBVA) slipped 3.4 percent to 8.56 euros as Societe Generale SA downgraded the stock to hold from buy, cutting its earnings estimates for 2014 and 2015 because of the bank’s reliance on emerging markets for revenue.

Colruyt slumped 8.8 percent to 38.41 euros. The Belgian discount food retailer said it will report a smaller profit for the year ending March 31 because sales growth has slowed in the last three months and the company has lost market share. It had predicted in November that profit would remain little changed. Colruyt reports its annual financial results on June 23.

Sandvik Retreats

Sandvik AB, the world’s biggest maker of metal-cutting tools, fell 5.1 percent to 87.25 kronor after saying operating profit slumped 72 percent to 590 million kronor ($90 million) in the final three months of 2013. Profitability on that measure slipped to 2.7 percent of sales in the period, from 8.8 percent in the final quarter of 2012.

Dufry AG (DUFN) declined 2.9 percent to 138.20 francs. Citigroup Inc. lowered its rating on the operator of duty-free shops to sell from neutral. Analyst Mauro Baragiola said passengers from Argentina, Brazil, Turkey and Ukraine may spend less in dollars or euros because their home currencies have slumped. The shares retreated 9.1 percent in January.

Ryanair jumped 6.3 percent to 6.71 euros. Europe’s largest discount airline also said in a statement that non-ticket sales, which include charges for reserved seating and priority boarding, rose 13 percent in the quarter through December.

Randgold Resources Ltd. rose 6.3 percent to 4,455 pence, its biggest gain since September. Gold production increased 15 percent in 2013, while costs fell 3 percent to $715 per ounce, the company said in a statement.

Smith & Nephew Plc added 1.1 percent to 886 pence after agreeing to buy ArthroCare Corp. for $1.7 billion, or $48.25 a share in cash. ArthroCare makes products for minimally invasive surgery used to treat sports injuries.

To contact the reporter on this story: Sofia Horta e Costa in London at shortaecosta@bloomberg.net

To contact the editor responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net


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