The Wires: European stocks fell, extending a two-year low, as French banks tumbled amid mounting concern that the sovereign-debt crisis is hurting interbank lending.
Euro stocks fall as French banking shares tumble
FRANKFURT // European stocks fell, extending a two-year low, as French banks tumbled amid mounting concern that the sovereign-debt crisis is hurting interbank lending. US futures dropped, while Asian shares were little changed.
BNP Paribas SA lost 8.1 per cent as France's largest bank denied a report that is has problems obtaining funding in US dollars. Société Générale SA sank 3.2 per cent and Credit Agricole SA slipped 1.2 per cent. Cairn Energy Plc fell 8.8 per cent, for the largest drop on the Stoxx 600, after abandoning its second well in less than two months.
The Stoxx 600 slid 0.8 per cent to 217.27 at 10:28am in London, reversing earlier gains of as much as 1.4 per cent. The gauge has fallen 25 per cent from this year's peak on February 17 as European and US economic reports trailed forecasts, adding to concern that the global economic recovery is at risk. The retreat has left the gauge trading at 9 times the estimated earnings of its companies, the lowest valuation since March 2009, according to data compiled by Bloomberg.
"There is a serious risk of a further escalation of the crisis," Tammo Greetfeld, an equity strategist at UniCredit SpA in Munich wrote in a report. "Success in stabilising the euro zone depends even more on effective reforms being implemented soon. We remain underweight euro zone equities."
The MSCI Asia Pacific Index gained 0.1 per cent today, while Standard & Poor's 500 Index futures expiring in December lost 1.1 per cent.
Former Bank of England Deputy Governor Howard Davies said France will have to provide capital to its banks because private investors appear unwilling to provide funds.
"There's no alternative now in France but for the government to provide new capital," Davies said. "The French government are going to have to stand up, and within the next two to three days, the French government will have to recapitalise their banks."
US money-market fund managers, led by Vanguard Group and Legg Mason Group, have cut their lending to French banks at a pace that may force the lenders to raise capital by selling assets, according to William Prophet, an analyst at Deutsche Bank Securities Inc.
Prime money funds in the US reduced their holdings in certificates of deposits issued by French banks by about 40 per cent in the three months through Aug. 11, Prophet wrote in a Sept. 9 report, based on a review of seven of the 10 largest funds eligible to purchase corporate debt.
Representatives of the so-called troika of the International Monetary Fund, European Central Bank and European Commission representatives will return to Greece this week, German Chancellor Angela Merkel said in an interview to be broadcast today.
Italy's treasury is selling 4 billion euros ($5.4 billion) of a new benchmark five-year bond today, after 10-year yields climbed to a five-week high of 5.571 per cent. Investors charged Italy 4.153 per cent yesterday in a one-year bill offering, up from 2.959 per cent a month ago.
Italian officials have held talks in the past few weeks with Chinese counterparts about potential investments in the country, an Italian government official said yesterday, adding that bonds weren't the focus.
European stocks pared their losses after BNP said it can finance its dollar needs at normal levels "directly and through foreign-exchange swaps." The shares sank 8.1 per cent to 24 euros after earlier plummeting as much as 12 per cent.
"French banks have been strongly hit by funding concerns, sovereign exposure and nationalisation fears," said Herve Samour-Cachian, a fund manager at Natixis Asset Management in Paris.
Société Générale, the country's second-biggest lender, retreated 3.2 per cent to 15.07 euros. Chief Executive Officer Frederic Oudea told Les Echos in an interview that the bank has sufficient capital and liquidity, and that its balance sheet is solid. Credit Agricole decreased 1.2 per cent to 4.77 euros.
France's three largest banks have lost at least half of their market capitalisation this year.
Cairn Energy Plc sank 8.8 per cent to 284.9 pence. The Scottish oil company plugged its Gamma-1 exploration well, about 294 kilometres (183 miles) off the west coast of Greenland after failing to find hydrocarbons. Cairn will continue to drill the Delta-1 well in the nearby Napariaq Block.
BHP Billiton Ltd., the world's biggest mining company, slid 1.5 per cent to 1,904.5 pence, while Rio Tinto Group, the second- largest, lost 1.5 per cent to 3,459 pence. Mining companies posted the worst performance among 19 industry groups in the Stoxx 600, losing 1.6 per cent.
Renault SA lost 1 per cent to 23.75 euros. Chief Executive Officer Carlos Ghosn said he sees European car demand stable "at best" in 2012 because of the "uncertainty" created by Europe's sovereign-debt crisis. The global auto market will grow next year while France's market continues to decline, Ghosn said in Maubeuge, France, yesterday.
PSA Peugeot Citroen slipped 0.8 per cent to 16.39 euros. Chief Executive Officer Philippe Varin told Le Figaro in an interview that the company has no choice other than to accelerate cost cuts in the face of deteriorating market prospects. Varin said he can't at present put a figure on the amount of extra cost savings that will be sought. Operations at some factories have been slowed, Varin told the newspaper.
Mitchells & Butlers gained 3.4 per cent to 243.6 pence as the UK owner of Harvester and Toby Carvery pubs and restaurants said that Piedmont's possible 230-pence-a-share bid "significantly" undervalues the company. Piedmont, which owns 23 per cent of Mitchells & Butlers, said in a statement yesterday that it has considered an offer for the remainder of the company after the owner of All Bar One dismissed its previous proposal. That offer was for 224 pence a share in cash or stock, Mitchells & Butlers said.
Julie Cruz // Bloomberg News