Bloomberg News

European Stocks Drop as Russia Faces Tougher Sanctions

July 21, 2014

European stocks fell, after posting a weekly gain, as the U.S. and Europe threatened tougher sanctions on Russia over its suspected role in the shooting down of flight MH17 in Ukrainian airspace.

Commerzbank AG dropped 1.9 percent after a report that Germany’s financial-markets regulator found high operational risks at the country’s second-biggest lender. Deutsche Post AG lost 1.6 percent after JPMorgan Chase & Co. lowered its earnings and stock-price estimate for Europe’s largest postal company. Julius Baer Group Ltd. jumped the most since at least October 2009 after saying first-half profit rose 56 percent.

The Stoxx Europe 600 Index fell 0.5 percent to 337.95 at the close in London. The gauge gained 0.8 percent last week as investors bet the Ukraine crisis was easing.

“The conflict in Gaza, the Ukraine crisis -- these are the main topics,” Soeren Steinert, who helps manage about $24 billion as associate director for equities trading at Quoniam Asset Management GmbH in Frankfurt, said in a phone interview. “I can’t see any panic selling. It is only just that people are not willing to buy. There is no conviction that the market should be falling further.”

The volume of shares changing hands in Stoxx 600-listed companies was 50 percent lower than the 30-day average for this time of the day, according to data compiled by Bloomberg.

National benchmark indexes fell in 14 of 18 western European markets. The U.K.’s FTSE 100 slipped 0.3 percent. France’s CAC 40 lost 0.7 percent. Germany’s DAX declined 1.1 percent to the lowest level since May 9.

Russian Role

Russia, already facing sanctions over Crimea and its role in backing separatism in Ukraine, faces international outrage after pro-Russian rebels shot down a Malaysia Airlines flight on July 17, killing 298 people on board. Evidence suggests the missile had been provided by Russia, U.S. Secretary of State John Kerry said.

The U.K. has supported calls by Germany and France to impose further sanctions on Russia at a meeting of European Union foreign ministers tomorrow in Brussels.

In the Middle East, diplomatic efforts to end two weeks of Gaza Strip fighting intensified after battles killed dozens of Palestinians and 13 Israeli soldiers in the conflict’s bloodiest single day.

Business Risks

Commerzbank fell 1.9 percent to 10.74 euros. Germany’s markets regulator BaFin found high operational risks and problems in the lender’s internal accounting system in 2013, Capital magazine reported, citing an unreleased BaFin report. The review didn’t find any errors in Commerzbank’s reporting, the magazine said.

Deutsche Post declined 1.6 percent to 25.04 euros. JPMorgan lowered its estimate for the company’s earnings before interest and taxes by 5 percent to 2.95 billion euros ($3.99 billion) in 2014. The brokerage cut its price estimate for the stock to 31 euros by the end of this year.

Separately, Bank of America Corp.’s Merrill Lynch unit said Deutsche Post may fail to meet its guidance for 2015 Ebit of 3.35 billion euros to 3.55 billion euros without favorable currency swings or one-time items.

A gauge of auto-industry companies posted the biggest drop among the 19 groups in the Stoxx 600. PSA Peugeot Citroen, Europe’s second-largest carmaker, retreated 3.7 percent to 10.81 euros. Renault SA, the third biggest, slipped 1.5 percent to 69.09 euros.

Travel Industry

A measure of European travel and leisure companies fell 1 percent. Air France-KLM Group lost 3.7 percent to 8.27 euros. TUI AG retreated 3.5 percent to 10.89 euros.

Banco Espirito Santo SA fell 3.1 percent to 40.7 euro cents. The Portuguese lender said its executive committee is finalizing the appointment of a financial institution as a specialized adviser. The Portugues lender will probably raise private funds to boost capital, the Bank of Portugal said last week as some companies from the Espirito Santo seek creditor protection.

Julius Baer (BAER) jumped 8.3 percent to 39.60 Swiss francs. The wealth manager founded in 1890 said first-half net income climbed to 178.3 million francs ($198 million) from 114 million francs a year earlier. Assets under management rose by 20 billion francs to 274 billion francs.

Tesco Plc added 1.3 percent to 288.65 pence after saying Unilever’s Dave Lewis will replace Philip Clarke as chief executive officer on Oct. 1. The retailer also said first-half sales and trading profit are below expectations.

Wm Morrison Supermarkets Plc slid 2.4 percent to 173.7 pence.

Sky Deutschland AG climbed 4.5 percent to 6.70 euros, the biggest gain since May 12. Rupert Murdoch’s 21st Century Fox Inc. may reach an agreement to sell its 57 percent stake in the company to British Sky Broadcasting Group Plc in the next two weeks, two people familiar with the matter said. The Sunday Times reported yesterday that BSkyB is close to a deal to buy the European assets from Fox. BSkyB fell 1.5 percent to 904 pence today.

To contact the reporter on this story: Jonathan Morgan in Frankfurt at jmorgan157@bloomberg.net

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

July 21 (Bloomberg) -- Bloomberg’s Ryan Chilcote reports on mounting international pressure on Russian President Vladimir Putin over the downing of flight MH17 in Ukraine. He speaks on “Bloomberg Surveillance.” July 21 (Bloomberg) -- James Awad of Plimsoll Mark Capital discusses investment plans and his approach to the markets during times of geopolitical risk. He speaks on “Market Makers.”

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