Portugal Crisis Deepens; EU Discusses Bailout Mechanism

Arthi Gupta
24 Mar, 2011
New York City

The European indexes soared as investors focused on economic recovery and European leaders meet for a two-day summit. Portuguese prime minister resigned and the prospect for international bailout increased. Spanish banks struggle to recapitalize. Swiss Re increased annual dividend.

[R]4:40 PM Frankfurt – The European indexes soared as investors focused on economic recovery and European leaders meet for a two-day summit. Portuguese prime minister resigned and the prospect for international bailout increased. Spanish banks struggle to recapitalize. Swiss Re increased annual dividend.[/R]

European leaders are struggling to increase the bailout fund size and approve an emergency funding that needs unanimous approval of all member nations.

At a two-day summit in Brussels that ends tomorrow, EU leaders discuss the size of bailout fund that may include Portugal and Spain.

According to 123jump.com sources in Brussels, Portugal bailout may cost as much as €80 billion but also needs approval from all members and Finnish government has already indicated that it does not have the parliamentary approval before the national election April 17.

Portuguese prime minister resigned and the prospect for international bailout increased and rating agencies lowered the outlook on Spanish banks as the sector struggle to recapitalize.

Portuguese Prime Minister Jose Socrates resigned on Wednesday after the Parliament rejected an austerity budget proposal. The proposals which included several cost-cutting measures intended to prevent a bailout was rejected with all the five opposition parties voting against it.

The yield on the 10-year Portuguese government bonds increased to the record high in ten years to 7.7% and 5-year bond traded at 7.9%.

Portugal has two government bonds of €10 billion expiring in April and in June and has short-term debt maturing in July and will need more funds to cover the payment for social security.

Portugal may be forced to seek as much as €80 billion combined between the EU and the IMF led bailout.

In additional smaller Spanish banks debt were downgraded by Moody’s and only two weeks ago the rating agency had lowered the Spain’s debt one level lower but still investment grade.

European leaders are set to meet in Brussels today. The two-day summit meeting is to formulate a “comprehensive response” to the sovereign debt crisis in the euro-zone.

In Paris CAC-40 index gained 55.11 or 1.41% to 3,968.84 and in Frankfurt DAX index edged higher 129.13 or 1.9% to 6,933.58.

Moody's Downgrades Spanish Banks

Moody's Investor Service on Thursday took multiple rating actions on Spanish banks following the downgrade of the nation's sovereign credit rating earlier in the month.

The rating action included downgrades by one or more notches of the senior debt and deposit ratings of 30 banks.

The outlook on most banks' senior debt and deposit ratings remains negative, reflecting the negative outlook on the sovereign rating and the negative outlook on banks' standalone credit profiles, given the challenging operating environment in Spain, Moody's said.

EADS Cassidian Unit Slashes Jobs

European Aeronautic Defence and Space Co. NV's Cassidian defense unit plans to cut 600 jobs in a restructuring, German daily Sueddeutsche Zeitung reported, citing an interview with Chief Executive Officer Stefan Zoller.

The restructuring is projected to results in savings of about €400 million for the Cassidian unit in three to four years.

Gainers & Losers

Brenntag AG gained 1.82% to €71.80 after the German industrial chemicals distributor reported fiscal year 2010 sales increased 20.2% to 7.65 billion euros from 6.36 billion euros a year earlier.

For the year, profit surged to €146.6 million from €0.5 million in the prior year. Earnings per share amounted to 2.93 euros, compared to last year's breakeven.

Evotec AG surged 4.76% to €3.08 after the drug discovery and development company reported fiscal year 2010 revenues surged 29% to €55.26 million compared with €42.68 million in the year-ago period. Net income for the full year was €2.98 million or 0.03 euros per share versus a loss of €45.50 million or 0.43 euros per share last year.

Jenoptik AG gained 0.97% to €5.63 after the company specializing in photonics and mechatronics technologies said fiscal year 2010 group sales grew 7.8% to €510.6 million from €473.6 million in the prior year.

Earnings generated in the year were €36.4 million compared to loss of €33.9 million last year. Earnings per share were 0.65 cents, compared to loss per share of 0.73 cents a year ago.

PV Crystalox Solar Plc slumped 3.80% to 57.00 pence after the photovoltaic silicon wafers maker said fiscal year 2010 revenues improved 6.4% to €252.56 million from €237.32 million a year earlier.

Profit for the year dropped 21.3% to €23.26 million from €29.56 million a year ago. On a per share basis, earnings were 5.7 euro cents versus 7.2 euro cents last year.

Swiss Re rose 0.89% to Sfr51.00 after the reinsurer said its board proposed the approval of a dividend for 2010 of Sfr2.75 per share, up 175% from Sfr1.00 in the prior year, reflecting the company’s improved capital base and profitability.