Insurance News

European Stocks Retreat on Bank Capital Concerns, Swine Flu

Posted on: May 11, 2009

April 28 (Bloomberg) — European stocks retreated on concern that banks may need to raise additional capital and the outbreak of swine flu will hinder an economic recovery.

BNP Paribas SA and Credit Suisse Group AG dropped more than 3 percent after the Wall Street Journal reported that Bank of America Corp. and Citigroup Inc. may require more cash following the completion of government stress tests. BHP Billiton Ltd. and ArcelorMittal slipped as investors speculated the spread of swine flu will hurt demand for metals and U.S. Steel Corp. reported a loss. Daimler AG led a sell off in carmakers after posting its first back-to-back losses in at least 10 years.

The Dow Jones Stoxx 600 Index lost 1.5 percent to 193.57, extending its 2009 decline to 2.4 percent. The gauge has rebounded 23 percent since March 9 on optimism that government plans to fix the banking system will help to pull the global economy out of recession.

“It’s very important to remember that we are still in a bear market and still have quite a lot of problems ahead of us,” said Philippe Gijsels, a senior structured equity strategist at Fortis Global Markets in Brussels. “Most of the banks have to pass the stress test because otherwise it will create a lot of anxiety,” he said in a Bloomberg Television interview.

National benchmark indexes declined in all 18 western European markets as the World Health Organization raised its global pandemic alert after the pig-flu virus was confirmed in the U.K., Mexico, the U.S., Canada and Spain. Germany’s DAX lost 1.9 percent, while France’s CAC 40 and the U.K.’s FTSE 100 slipped 1.7 percent.

Consumer Confidence

Stocks pared losses after an index of U.S. consumer confidence jumped by the most since 2005, adding to signs that the recession may be easing.

France’s BNP Paribas dropped 3.9 percent to 36.77 euros, while Credit Suisse, Switzerland’s biggest bank by market value, sank 3.2 percent to 42.76 Swiss francs.

Early results of the government’s examination of the 19 largest U.S. banks show Bank of America and Citigroup may need additional capital, the Journal reported. Both companies plan to mount a detailed rebuttal of the Federal Reserve’s preliminary report following the tests, the newspaper said.

‘Wait and See’

The Financial Times reported today that Britain’s largest banks may be required to hold more capital than the industry average to help guard against future financial crises under a plan that Chancellor of the Exchequer Alistair Darling is expected to announce next month.

“It’s a little bit of wait and see for the banks,” said Gary Baker, head of equity strategy for Europe, Africa and the Middle East at Bank of America-Merrill Lynch. “There have been very good news from banks in terms of first-quarter earnings but that capital position is still one that is hovering over everyone.”

Bank of America spokesman Robert Stickler declined to comment on the report, saying the process allows banks to respond to the government’s comments. Citigroup spokesman Jon Diat also declined to comment on the stress test, and said the bank’s capital base is “strong.”

Deutsche Bank AG slid 6.9 percent to 40.26 euros even after Germany’s largest lender posted a first-quarter profit of 1.19 billion euros ($1.55 billion), compared with a loss of 131 million euros a year earlier. Chief Executive Officer Josef Ackermann also agreed to extend his contract by three years.

The shares erased more than half the gain of the past week on concern about possible writedowns and as earnings from asset management and transaction banking missed analysts’ estimates.

BHP, Rio Tinto

BHP Billiton, the world’s largest mining company, fell 2.2 percent to 1,359 pence. Rio Tinto Group, the third-largest, decreased 6.3 percent to 2,518 pence.

Copper led industrial metals in London lower on concern the swine flu outbreak may hamper efforts to revive the global economy and hurt demand for industrial metals.

ArcelorMittal, the world’s biggest steelmaker, dropped 6.1 percent to 18.67 euros after U.S. Steel reported a first-quarter net loss that was more than twice analysts’ estimates and cut its dividend as prices plunged.

Automakers Sink

Daimler dropped 3.7 percent to 26.38 euros. The world’s second-largest maker of luxury cars reported a first-quarter net loss of 1.3 billion euros, wider than the 790 million-euro median estimate in a Bloomberg survey.

Renault SA and PSA Peugeot Citroen, France’s biggest automakers, retreated 5.2 percent to 21.74 euros and 5.2 percent to 16.54 euros respectively.

Air Liquide SA fell 5.6 percent to 62.10 euros. The world’s biggest maker of industrial gases cut its forecast for full-year sales and net income after first-quarter revenue declined. Sales and earnings this year will be close to 2008 levels, Air Liquide said. The company had earlier predicted growth in both measures.

WPP Plc retreated 3.9 percent to 424.25 pence. The world’s largest advertising company said it will be “difficult” to maintain operating margins at the levels achieved in 2008. WPP also said first-quarter sales excluding acquisitions and currency swings fell 5.8 percent as clients cut spending amid the global economic slowdown.

Sandvik AB, the world’s largest maker of metal-cutting tools, dropped 15 percent to 57.25 kronor after posting an unexpected first-quarter loss and saying orders plunged 39 percent, missing analysts’ estimates.

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