French Banks Plunge 10%, Italy Sells

Arthi Gupta
12 Sep, 2011
New York City

The European indexes plunged after reports on the rising worries of the capital adequacy at French banks. Italy sold

[R]1:30 PM Frankfurt – The European indexes plunged after reports on the rising worries of the capital adequacy at French banks. Italy sold €11.5 billion of Treasury bills at higher yields. Greece unveiled fresh austerity measures of €2 billion. Technip agreed to acquire Global Industries for $1.07 billion.[/R]

European markets extended losses on Monday for the second day on the new worries about French banks and Greece. Greece lowered its annual economic growth to decline 5.3% from 3.8%.

French banks suffered heavily in trading today on the worries that even if Greece declares a partial default on it bonds, French banks will suffer heavy losses and will be constrained to raise new capital.

BNP Paribas plunged 14.4% to €25.50, Société Générale slumped 9.7% to €15.75, and Crédit Agricole plummeted 9.3% to €4.90.

Italy sold €11.5 billion or $15.6 billion of three- and 12-month Treasury bills at an auction today at higher yields.

The Treasury sold €7.5 billion of one-year bills at an average yield of 4.153% compared with 2.959% in a similar auction on August 10. The bid-to-cover ratio was 1.53 times compared with 1.94 times in the previous sale.

The Treasury also sold €4 billion of 3-month bills. The yield was 1.907% compared with 1.034% at the previous three-month T-bill sale on March 10. The bid-to-cover ratio was 1.86 compared with 2.42 in the previous sale.

The Group of 7 meeting of finance ministers and central bankers held on Friday in Marseille concluded with a commitment to present a ""coordinated international response"" to the multiple challenges facing economies world over.

The G7 ministers vowed to make strong efforts to preserve financial stability, restore confidence and support economic growth.

The European Central Bank''s chief economist and executive board member Jürgen Stark resigned over a disagreement with the bank''s controversial bond-buying program.

A press release from the ECB said Stark was leaving for ""personal reasons.""

In Paris, CAC-40 Index slumped 142.13 to 4.78% to 2,832.46 and in Frankfurt DAX Index edged lower 176.07 or 3.39% to 5,013.86.

The Independent Commission on Banking published its final report today on how the banking sector should be reformed. The commission recommends that large UK retail banks should have equity capital of at least 10% of risk-weighted assets, 3% more than the new international Basel III minimum of 7%. The commission reiterated that this should however be completed at the latest by the Basel III date of the start of 2019.

The proposed reforms are expected to result in an annual pre-tax cost of £4 billion to £7 billion for Britain''s banks, with at least half of the costs arising from curtailing implicit government guarantee.

Greece Unveils Fresh Austerity Measures

The Greek government unveiled a fresh round of austerity measures amounting to €2 billion.

Finance minister Evangelos Venizelos on Sunday said that the government decided to impose a new two-year real estate tax and hold back a month’s pay from all elected officials.

Technip Acquires Global Industries

Technip SA, the French oil and gas services provider agreed to acquire offshore marine construction services firm Global Industries Ltd. for $8 a share in cash to boost its leadership in the fast-growing subsea segment of oil services. The transaction values Global Industries at $1.07 billion, including approximately $136 million of net debt.

Gainers & Losers

Delhaize Group SA slumped 2.2% to €43.990 after the Belgium-based food retailer said it created Delhaize Europe organization to increase the collaboration between the European operating companies, fully leverage the scale of the European operations and generate cost savings and facilitate the sharing of best practices so as to provide a stronger platform for local, regional as well as global growth.

ElringKlinger AG plunged 5% to €15.06 after the gasket maker said it acquired a 90% interest in the Hummel Group for approximately €13 million.

Fraport AG plummeted 5.1% to €44.37 after the German airport operator reported passenger traffic advanced 2.5% from last year to 5.35 million passengers in August.

The Swatch Group SA declined 0.96% to Sfr350.80 after the manufacturer of watches, jewelry and accessories terminated its cooperation contracts with Tiffany citing Tiffany’s systematic efforts to block and delay development of the business.

Swiss Re fell 3.03% to Sfr37.14 and the reinsurance company estimates continued improvement in property and casualty underwriting conditions.

Volkswagen AG decreased 1.5% to €102.15 after the German automaker served notice for an alleged infringement of a cooperation agreement by Japanese car maker Suzuki Motor Corp., following the Japanese car maker''s recent decision to buy diesel engines from Italian car maker Fiat SpA.