European Indexes Down 2%, Banks Lead Decliners

Arthi Gupta
19 Sep, 2011
New York City

The European indexes traded lower after euro area finance ministers postponed a decision to release next tranche of bailout funds for Greece. German Chancellor Angela Merkel suffered another regional election defeat in Berlin. Euro area construction output rose in July.

[R]1:00 PM Frankfurt – The European indexes traded lower after euro area finance ministers postponed a decision to release next tranche of bailout funds for Greece. German Chancellor Angela Merkel suffered another regional election defeat in Berlin. Euro area construction output rose in July.[/R]

European markets declined sharply after the meeting of European finance ministers failed to approve the Greek bailout portion. The lack of agreement among ministers highlighted the differing priorities in the region and confirmed that Greece heading to a default.

The ministers could not agree on the size and the nature of the collateral for Greek debt and also were concerned by the Greece’s lack of progress in trimming its expenses and balancing the budget.

The meeting of European finance ministers delayed the release the next tranche of bailout of €8 billion for Greece until October. Greece needs the payment to avoid defaulting on its debt.

Bank stocks slumped.

Deutsche Bank fell 2.6% to €24.46, Commerzbank plunged 4.3% to €1.69, Societe Generale plummeted 5.7% to €17.88 and Credit Agricole gained 0.3% to €4.93.

Greek Prime Minister George Papandreou cancelled a planned trip to the U.S. and the Greek cabinet held an emergency meeting on Sunday for assessing the latest developments.

Greek Finance Minister Evangelos Venizelos is scheduled to hold a teleconference today with the officials from the European Union and the International Monetary Fund to secure the next aid payment for Greece.

Germany''s chancellor Angela Merkel controlled party suffered another regional election defeat in Berlin. The latest defeat is the seventh in a row in the last two years in regional elections and highlights a growing anxiety among German voters on the rising cost of bailing out peripheral nations in the euro-zone.

In Paris, CAC-40 Index slumped 70.09 to 2.6% to 2,951.99 and in Frankfurt DAX Index edged lower 157.41 or 2.8% to 5,416.10.

The AEX Index fell 2.4%. The yields on the German two-year notes fell below 0.5%.

Yields on Italian and Spanish bonds rose. Italy’s 10-year yield increased nine basis points to 5.6% and Spanish 10-year rates rose seven basis points to 5.4%. Greece’s 10-year yield rose 171 basis points to 22.9%.

Euro-zone Construction Output Rises

Construction output in the euro area increased from last year in July, according to latest data released by Eurostat today.

Construction production increased 1.2% from a year ago in July compared to a revised 11.5% decline recorded in June. Output in EU27 region rose 0.2% in July, following the 8% drop in June.

Gainers & Losers

BNP Paribas SA fell 2.9% to €27.39 after the French lender’s Belgian retail-banking unit, BNP Paribas Fortis is planning a cost-cutting program aimed at saving about €200 million annually, reports said.

Credit Suisse Group AG slumped 4.3% to Sfr21.74 after the Swiss financial services company reached an agreement with the Public Prosecutor''s Office in Dusseldorf, Germany, to resolve proceedings against the bank''s employees by paying €150 million.

Lloyds Banking Group PLC declined 1.8% to $2.23 after the British banking group’s Finance Director, Tim Tookey decided to leave the company and assume the position of Chief Financial Officer of Friends Life Group Plc, the UK Life project of insurer Resolution Ltd.

Novartis AG slid 0.8% to Sfr48.70 after the Swiss drug maker said its drug Ilaris has met the goals of a late-stage study in patients with a severe and rare form of childhood arthritis.

UBS AG dropped 1.36% to Sfr10.12 after the financial services company raised its loss estimate from the unauthorized trading to $2.3 billion from its previously disclosed estimate of $2 billion.