German Court Approves Bailout Authority; SAP Affirms Earnings

Arjun Dave
07 Sep, 2011
New York City

European markets rebounded and bond yields declined after German Constitutional Court affirmed the government

[R]5:30 PM Frankfurt – European markets rebounded and bond yields declined after German Constitutional Court affirmed the government’s authority to fund bailouts in the euro-zone. Italian Senate is expected to vote on austerity measures later today. SAP AG reaffirmed its earnings outlook. Richemont sales soar 35% in the first half.[/R]

European markets jumped after Germany’s Constitutional Court approved the government’s authority to fund future bailouts and German industrial production jumped 4% in July from June.

Stocks were on the upswing after the court ruling and rebounded from a 3-day sell-off in the region but banks were under pressure again. BNP Paribas denied rumors of dollar liquidity problems.

Italian Prime Minister Silvio Berlusconi is expected to win the vote of confidence in the Senate later in the day. The austerity measures to be passed by the Senate will need a final approval from the lower house.

Italian austerity measures are expected to increase VAT by 1% and levy 3% tax on high income earners of more than 300,000 euros and cut various government spending and advance the increase in retirement age for women in private sector.

Italian, German and French bonds yields declined after the German Constitutional Court rejected the three appeals challenging the government authority to fund the bailout of smaller nations in the euro zone.

However, the highest court ordered the government to seek an approval of a parliament budget committee for any new bailouts.

BNP Paribas confirmed on Wednesday that it has “excess” short term U.S. dollar liquidity.

The stock has been battered more than 50% in the last five weeks of trading as the U.S. based money market funds have cut their exposures to French banks for additional 10% after cutting by 30% in July.

The bank confirmed that it has access to a variety of sources for funds but the switch from the money market funds will increase the cost of funding.

The bank also denied the rumors that it lacks funding sources and has dollar liquidity problems and added that stock is trading at low valuation based on “unrealistically pessimistic” expectations.

Ukraine plans to sell stakes in state controlled oil and gas company Naftogaz and raise between $10 billion and $12 billion. Energy Minister Yuri Boiko said to reporters the funds will be used to increase gas extraction and energy effectiveness.

FTSE 100 index increased 2.1% or 106.7 to 5,264, DAX 30 index added 3.3% or 171.80 to 5,366 and CAC 40 index gained 2.6% or 75.90 to 3,041.

The yield on Greek bonds rose after Finnish Prime Minister Jyrki Katainen raised the possibility that his nation may not contribute in future Greek bailouts if the collateral conditions are not met.

He told to reporters at a gathering in Helsinki that the collateral is a small issue in “larger package” and we “can’t wait forever” and the issue must be resolved in the next few days.

Greek 10-year yields rose above 20% and yield spread with the German Bund increased to 18.15 percentage points. Two year yields soared 1.1% to 53.40%.

Portugal completed the sale of 3-month Treasury bills auction that raised 854 million euros at the average yield of 4.959%. The demand in the auction increased to 2.2 times the available bonds compared to 1.8 times at the last auction on Aug 17 that yielded 4.854%.

Stock Movers

SAP AG soared 4.3% to 37.33 euros after its chief financial officer Werner Brandt affirmed the annual outlook the company provided in July. Brandt confirmed at an investor conference in London that sales from software and services are expected to be near the upper end of the estimated range.

Richemont, the luxury goods maker and retailer said first five months sales increased 35% on constant currencies. The company said the net income is expected to be in line with the earnings last year and blamed strong Swiss franc.

Chairman and Chief Executive Johann Rupert noted in a statement that record high Swiss franc and global economic uncertainty is expected to weigh on the margins and net income.

Sales in Asia Pacific region increased 59% in the period and rose 22% in Europe and soared 41% in the Americas region.

Russia focused Vimplecom said second quarter revenues increased to $5.5 billion and consolidated net profit decreased to $239 million.

VimpelCom Ltd. decreased 2.7% or 30 cents to $10.57 in New York trading after the Netherlands based communication service provider reported second quarter revenues surged 109% to $5.53 billion from $2.64 billion in the same quarter last year.

Net income in the quarter declined 29% to $239 million or 16 cents per diluted share compared to $335 million or 28 cents per share a year ago earlier.

The company acquired Egypt based Orascom Telecom and Italy based Wind in April.

BNP Paribas SA increased 5.6% to 31.34 euros, Societe Generale rose 1.7% to 19.25 euros and Deutsche Bank AG added 3.9% to 24.442 euros. Barclays Plc soared 4.5% to 157.55 pence.