European Markets Higher; OECD Warning

Arthi Gupta, Mayank Mehta and Sanjay Barot
26 May, 2010
New York City

European markets rebounded after losing nearly 5% in the last six trading sessions. French April consumer spending drops as car purchases slump. Telefonica SA urged Portugal Telecom shareholders to consider its bid for Brasilcel.

[R]5:00 PM Frankfurt, Paris; 11:00 PM New York – European markets rebounded after losing nearly 5% in the last six trading sessions. French April consumer spending drops as car purchases slump. Telefonica SA urged Portugal Telecom shareholders to consider its bid for Brasilcel.[/R]

European stocks rose on bargain hunting and fading war rhetoric in the Korean peninsula and the OECD called on the euro-zone fiscal framework overhaul.

In London FTSE 100 Index traded higher 108.85 or 2.20% to 5,049.53, in Paris CAC 40 Index increased 89.61 or 2.69% to close at 3,420.90, in Frankfurt DAX index higher 115.02 or 2.03% to close at 5,785.06. In Zurich trading SMI increased 89.47 or 1.47% to close at 6,181.02.

Basel liquidity standards proposal needs to be revisited, according to the European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo.

While raising the growth forecast for the euro area, the Organization for Economic Cooperation and Development called on the single-currency region to overhaul its fiscal framework to bring the crisis under control.

The OECD said the biggest challenge facing the world''s richest countries is bringing down high debt levels while also ensuring economic growth. It called for """"bolder"""" measures from European authorities to tackle the debt crisis, with suggestions ranging from stronger surveillance of domestic policies to a de facto fiscal union.

The debt crisis """"has highlighted the need for the euro area to strengthen significantly its institutional and operational architecture to dissipate doubts about the long-term viability of the monetary union,"""" the report stressed.

The organization also dispelled fears that a Greek default could plunge the banking sector into another credit crunch. French banks are estimated to hold $78.8 billion in Greek assets, while German banks hold $45 billion. These amount to relatively small shares of their total external exposure and would not cause major damage, it said.

However, if losses were to arise also on assets based in Portugal and Spain, the impact on German and French banks """"could be more challenging,"""" the OECD report noted.

France''s consumer spending declined more than expected in April largely due to a sizeable fall in automobile sales.

Consumer spending in manufactured goods decreased a seasonally adjusted 1.2% month-on-month in April after rising a revised 1.6% in March, statistical office INSEE said today.

German consumer confidence is set to weaken again next month with consumers unsettled over the sovereign debt crisis and discussions about the stability of the euro.

The forward-looking consumer sentiment index for June dropped to 3.5 from a revised value of 3.7 in May, a monthly survey from the Nuremberg-based GfK Group showed Wednesday.

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo on Wednesday said the calibration of the Basel Committee''s proposed liquidity standards needs to be revisited.

""""The proposed liquidity standards address the major shortcomings identified by the financial crisis in the area of liquidity risk by requiring banks to increase their holdings of liquid assets and to reduce their reliance on short-term volatile funding sources,"""" he added.

Accor SA, the hotel operator said that bondholders have approved the separation of its services business.

Lafarge SA, the cement maker said it would cut its debt by €77.5 million by setting up a joint cement company in central Europe with Strabag AG.

Telefonica SA said that its €5.7 billion offer for Portugal Telecom''s stake in Brasilcel should be discussed and voted by Portugal Telecom''s shareholders. Telefonica said that Portugal Telecom directors rejected the offer without due consideration.

On May 11, Portugal Telecom said its Board of Directors unanimously rejected offer for Brasilcel from Telefonica SA.

On May 6, Telefonica SA submitted to Portugal Telecom a cash offer for the acquisition of the shares representing 50% of the capital stock of the Dutch company Brasilcel, N.V., owned by Portugal Telecom for a total purchase price of €5.7 billion.

Brasilcel, N.V is a company 50-50 owned by Telefonica, S.A. and Portugal Telecom, SGPS, S.A., which owns shares representing, approximately, 60% of the capital stock of the Brazilian company Vivo Participacoes, S.A.

Gainers & Losers

Accor SA rose 1.1% to €37.35 after the hotel operator today approved all of the stipulations of the proposed asset contribution-demerger agreement as well as the contribution to New Services Holding S.A.

Atari SA traded unchanged at €3.41 after the videogame publisher said fiscal year 2010 revenues fell 15% to €115.7 million from €136.4 million a year ago. Net loss for the year was €19.4 million compared to net loss of €221.9 million a year ago.

Bayer AG, the drugmaker fell 0.03% to €44.12.

CNP Assurances SA rose 0.5% to €58.94 after the personal insurance provider reported that shareholders approved a four-for-one stock split, effective 5 July 2010.

Deutsche Telekom AG rose 1.5% to €8.92 after the integrated telecommunications provider was upgraded to “overweight” from “neutral” at JPMorgan Chase & Co.

Fimalac SA traded unchanged at €33.06 after the financial services company said first half revenues rose 6% to €282.1 million from €265.6 million a year ago. Net profit for the first half rose 2,100% to €17.6 million compared to net profit of €0.8 million a year ago.

Lafarge S.A. increased 2.8% to €44.43 after the building materials company said STRABAG, Central and Eastern Europe''s largest construction company are combining their cement activities in several countries of Central Europe.

Lafarge then will hold a 70% interest in the new company, while STRABAG will hold 30%. As a result of this transaction, Lafarge debt will be reduced by €77.5 million.

Linde AG declined 0.05% to €81.50. The industrial gases and engineering company was downgraded to “hold” from “buy” at Citigroup Inc.

Q-Cells SE, the solar cell maker rose 4.2% to €4.83.

Rhoen-Klinikum AG increased 2.1% to €17.86 after the provider of health care services was upgraded to “buy” in new coverage at Royal Bank of Scotland Group Plc.

Salzgitter AG rose 4.6% to €51.36 after the steelmakers was upgraded to “hold” from “sell” at ING Group NV.

Societe Generale SA, the banking group rose 2.7% to €33.92.