European Markets Drop 3%; BNP Paribas , SG, Deutsche Bank Fall Over 6%

Devan Biswas
09 Sep, 2011
New York City

European markets plunged more than 3% and banks dropped between 5% and 10%. The yields on German and Dutch bonds dropped to record low since the creation of the euro. Nestle in talks to buy Russia based baby food maker. Volkswagen delayed its purchase of Porsche SE.

[R]4:10 PM Frankfurt – European markets plunged more than 3% and banks dropped between 5% and 10%. The yields on German and Dutch bonds dropped to record low since the creation of the euro. Nestle in talks to buy Russia based baby food maker. Volkswagen delayed its purchase of Porsche SE.[/R]

Stocks in Europe were on the defensive after banks gained center stage and the prospect of mild recession increased in the U.S. the German and Dutch bond yields dropped to the record low since the creation of the euro in 1999.

Banks plunged on the worries that new capital may be required as early as this year and the top 20 European banks may need more than 90 billion euros.

Banks in Italy are now relying for more than 50% of its needs on the European Central Bank and banks in Ireland, Portugal and Greece are completely shut out from the public markets.

French banks are now looking at alternative source of funding as the U.S. based money market funds are lowering their lending to French and other European banks.

FTSE 100 index decreased 2.4% or 124.70 to 5,215.03, DAX 30 index fell 4% or 218.50 or 4% to 5,231.70 and CAC 40 index dropped 3.6% or 111.2 to 2,975.07.

German bond yields on 10-year declined to record low to 1.75% and Italian bonds extended losses and yields rose to 4.22%. Greek 2-year bond yields fell 1.24 percentage points to 56.29%.

Spain’s 10-year bonds yield increased to 5.19% and Italian 10-year bonds yields gained 17 basis points to 5.45%.

German finance minister Wolfgang Schaeuble told in a parliament budget debate that “Germany’s position in the terms of economy, employment and finance is good, but the development of the world economy is at a critical juncture.”

He also added the current world crisis is rooted in the lack of financial market regulations and “high debt of government”

The index in Milan and Madrid dropped 3.3% and in Athens and in Stockholm fell more than 2.6% and in Switzerland declined 1.2%.

Ireland’s debt management office head John Corrigan told a parliamentary committee that the country’s return to public debt market may be affected by what happens in Greece. Ireland is planning to expand its short term debt of 3 months to 6 months offering to longer maturities in the middle of the next year.

Italy’s government agency noted gross domestic product increased 0.3% in the second quarter from the first quarter when it expanded 0.1%. The economy expanded at 0.8% from the year ago quarter.

Italy plans to sell 18.5 billion euros of debt on Sept 12 and 13 and Spain is scheduled to sell bonds on Sept 15.

Stock Movers

Volkswagen AG decreased 3% to 96.53 euros, Daimler AG fell 3% to 32.60 euros and Porsche Automobil Holdings SE plunged 13% to 38.27 euros after VW said it will delay the merger beyond 2011 and look for other ways to integrate two operations.

BMW decreased 2.6% to 51.97 euros and the luxury automaker said the company is prepared for the recession but it does not see one coming.

Deutsche Lufthansa AG fell 49 cent to 10.53 euros and Air France-KLM declined 28 cents to 6.01 euros.

Bayer AG added 0.5% to 39.17 euros and BASF fell 4.4% to 44.56 euros.

Siemens AG decreased 3.6% to 65.26 euros and Philips Electronics NV dropped 3.7% to 12.77 euros. Alcatel Lucent dropped 3.6% to 2.34 euros.

BNP Paribas SA dropped 6.1% to 30.25 euros, Societe Generale plunged 9.3% 17.69 euros and Deutsche Bank AG plunged 5.7% to 23.48 euros. Barclays Plc dropped 6.9% to 148 pence.

Glencore dropped 5.6% to 411.80 pence after the Switzerland based commodities trader said yesterday it increased stake in South Africa based Optimum Coal to 25.8% from 24.7%.

Glencore acquired 2.5 million shares at an average price of 37.99 rand a share, higher than the takeover price of 34 rand offered by the company controlled consortium.

Optimum said today that for takeover to succeed at least 38 rands per share needs to be offered.

Nestle SA is in talks to acquire Russia based baby food maker Progress, the maker of baby foods and juices. The talks were first reported by Reuters and independently confirmed by 123jump.com sources in Moscow and Geneva, Switzerland.