Europe’s Banks Slump as Selloff Continues

LONDON—European banking stocks continued a steep decline Friday, extending Thursday’s losses, on deepening fears of a global economic slowdown and funding worries. Stocks were mixed at the open, with some of Thursday’s heaviest fallers posting slight gains, but most slipped into the red

About two hours after the European open, London’s FTSE 100 Index was down 1.7% at 5005.04, Frankfurt’s DAX shed 3.1% to 5432.02 and Paris’s CAC-40 Index dropped 2.4% to 3003.19, having fallen below the key 3000-level early in the session.

U.K. banks were among the heaviest fallers.Barclays PLC was down 6.2% at 144 pence,Lloyds Banking Group PLC fell 5.7% to 28 pence, and Royal Bank of Scotland GroupPLC was down 3.7% at 21 pence.

In France, Société Générale SA, which lost over 12% Thursday, was down 2% at €20.94 and BNP Paribas SA dropped 3.4% to €33.03.

Among Italian banks, which have been hard hit recently by sovereign debt concerns, Intesa Sanpaolo SpA slipped 4.2% to €1.14, and trade in UniCredit SpA was halted in Milan as it hit the trading-decline limit.

Basic resources also came under pressure, with the Stoxx 600 index for the sector off 3.5% as investors fretted over the outlook for the global economy and demand for resource-based products.

Still, there was some cheer in corporate news. Autonomy soared 75% on news that Hewlett-Packard offered £25.50 a share for the British company. The companies said the offer values Autonomy at about £6.21 billion.

Exane BNP Paribas said Friday that investors were being spooked by a number of factors, including dollar liquidity, worries that European banks haven’t marked down their sovereign-debt exposures enough, and the risk of a fresh recession.

„Additionally, austerity measures in Europe are likely to further slow down the anaemic level of economic growth currently experienced,” Exane BNP Paribas said.

It added that the publication of the Philadelphia Fed Survey in the U.S., which showed a reading of minus 30.7 for August, increased concern about a double-dip recession in the U.S. as this level has been consistent with recessions in the last 50 years.

The Dow Jones Industrial Average ended down 419.63 points, or 3.68%, to 10990.58. The Standard & Poor’s 500-stock index dropped 53.24 points, or 4.46%, to 1140.65, while the Nasdaq Composite lost 131.05 points, or 5.22%, to 2380.43.

Friday’s continuing share decline in Europe follows a massive selloff on the region’s bourses Thursday, attributed in part to Morgan Stanley cutting its euro-zone growth forecasts. Financial stocks had already been under some pressure from a proposal to impose a tax on European financial transactions at a Tuesday meeting between German and French leaders.

„There’s not been any good news flow in this sector for a while,” said Investec Securities analyst Arun Melmane.

European banks were also being hit by funding worries. The Wall Street Journal reported Thursday that the Federal Reserve Bank of New York, which oversees the U.S. arms of many large European banks, had demanded more information about the banks’ access to funding.

Concerns about funding were also fueled by data from the European Central Bank Wednesday showing that an unnamed bank had borrowed $500 million, the first use of the ECB’s seven-day dollar fixed-rate swap operation for 23 weeks. „This is feeding new fears,” said a Paris-based analyst.

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.

In Asia, shares were sharply lower Friday as renewed concerns the global economy will tip back into recession gripped investors.

Japan’s Nikkei Stock Average was down 1.9%, while South Korea’s Kospi Composite lost 5%. Hong Kong’s Hang Seng Index dropped 2.4%, Australia’s S&P/ASX 200 fell 2.7%, India’s Sensex declined 1.4%, and the Shanghai Composite Index was down 1.3%.

In foreign-exchange markets, the yen continued to strengthen against the U.S. dollar, keeping markets on high alert for yen-selling intervention by Japanese authorities. Meanwhile, the equities selloff dented the euro.

The U.S. dollar was fetching ¥76.38 from ¥76.57 late Thursday in New York, while the euro was at ¥109.20 from ¥109.75 and $1.4287 from $1.4333. Against the Swiss franc, the euro was buying 1.1296 francs from 1.1380 francs.

Elsewhere, September Nymex crude-oil futures were down $2.69 at $79.69 a barrel. Spot gold soared to $1,862.80 a troy ounce, having reached a new record high of $1,868.95.

sursa: Wall Street Journal