UPDATE: European Bank Stocks Top Losers As Economic Concerns Mount
August 18 2011 - 1:00PM
Dow Jones News
European banking stocks extended losses Thursday after the U.S.
market opened sharply lower and concerns grew over the
investigation by federal regulators into whether European banks
have sufficient funding to operate on a day-to-day basis in the
U.S.
Losses in the sector were spread across Europe, with Barclays
PLC (BCS) closing down 11%, Societe Generale SA (GLE.FR) down 12%
in Paris and Germany's Commerzbank AG (CBK.XE) off 10%. Dexia SA
(DEXB.BT) led the slump in Belgian financials, closing down 14%.
Each of the banks was the leading loser on its country's key stock
index.
The Stoxx 600 European banking index lost 6.7%, as no country
was spared the damage.
"Banking stocks have been decimated across Europe, with
indiscriminate selling even in banks that maintain their exposure
to the crisis is slim," said Will Hedden, sales trader at IG
Markets. "No sector is surviving this tidal wave of selling, and
the fact that financials are first in the firing line will only
lend support to the anti-short-selling-ban camp."
The day's sell-off was triggered after Morgan Stanley (MS) cut
its GDP growth forecasts for the euro area. The revival of a
proposal to impose a tax on European financial transactions at a
recent meeting between German and French leaders also weighed
banking stocks, said Arun Melmane, an analyst at Investec
Securities.
"There's not been any good newsflow in this sector for a while,"
Melmane added.
Stocks fell further on a front-page story in the Wall Street
Journal that the Federal Reserve Bank of New York, which oversees
the U.S. arms of many large European banks, had recently been
demanding more information about the banks' access to funding.
The report came a day after data from the European Central Bank
showed an unnamed bank had borrowed $500 million. "This is feeding
new fears," said an analyst in Paris.
Earlier Thursday, Morgan Stanley warned that it sees "material
risk of outright recession," and cut its 2011 euro area GDP growth
forecast to 1.7% from 2.0%, and its 2012 forecast to 0.5%, from
1.2%. Goldman Sachs, meanwhile, cuts the 2012 Global GDP growth
forecast To 4.4% From 4.6%.
Morgan Stanley cited a number of new factors that are likely to
weigh on growth in the second half the year, such as slower global
trade growth, tougher term funding markets for banks and additional
austerity measures announced in several countries.
For nearly two years, many investors and analysts have been
arguing that the European banking sector is undercapitalized and
overexposed to potentially risky debts of cash-strapped countries
like Greece, Portugal, Ireland, Spain and Italy.
-By Michael Haddon and Marietta Cauchi, Dow Jones Newswires;
4420-7842-9289; michael.haddon@dowjones.com
(Michelle Maatoukk, Noemie Bisserbe and Simon Kennedy
contributed to this article.)
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