European Indexes Slump; Dexia Plummets 14%

Arthi Gupta
04 Oct, 2011
New York City

European indexes extended losses for the third day after euro area finance ministers postponed the decision on the next loan instalment for Greece. Banks led the decliners after Belgium based Dexia faces credit downgrade.

[R]2:00 PM Frankfurt – European indexes extended losses for the third day after euro area finance ministers postponed the decision on the next loan instalment for Greece. Banks led the decliners after Belgium based Dexia faces credit downgrade.[/R]

European indexes declined after euro-zone finance ministers decided to put off the decision on the next loan instalment for Greece, worth €8 billion, until the troika report on the country''s progress with the fiscal targets is ready.

A meeting of the finance ministers of the euro-zone scheduled for October 13 to decide on the next loan tranche for Greece has been canceled, according to Eurogroup President Jean-Claude Juncker.

Juncker further stated they were reassessing the extent of the private sector''s role in a second bailout plan after the EU''s July 21 agreement with the worsening financial crisis. Under the previous agreement, it was understood that private creditors would take a 21% ‘haircut’ in the value of their holdings of Greek debt.

Reports suggest that the euro-zone chiefs approved a mechanism by which Finland will receive collateral for its aid to Greece.

Finland must make a payment of €1.4 billion to the permanent euro-zone rescue fund to be set up in 2013, the European Stability Mechanism, while other states only need to deliver their contributions over the course of five years.

Separately, a spokesperson from the Greek Prime Minister''s office denied that George Papandreou was considering resigning and said that this morning''s report from Financial Times Deutschland was ""nonsense.""

Standard & Poor''s lowered its growth forecast for Europe and said that the risk of a double-dip recession has risen due to lower business confidence and an economic slowdown in the U.S.

The ratings agency lowered its euro-zone 2012 gross domestic product growth forecast to 1.1% in 2012 compared to the previous estimate of 1.5%.

Goldman Sachs cut its global 2012 economic growth forecast to 3.5% from 4.3% and predicted recessions in Germany and France.

The Reserve Bank of Australia decided to keep its official interest rate at 4.75%.

In Paris, CAC-40 Index slumped 83.97 or 2.9% to 2,841.83 and in Frankfurt DAX Index edged lower 191.68 or 3.6% to 5,184.87.

Italian 10-year bond yield fell two basis points to 5.52%. The two-year note yield was little changed at 4.22%, and similar-maturity Spanish note yields were at 3.49%.

Benchmark indexes in Greece dropped 3% to 267.56, the FTSE MIB fell 3% to 14,200.84, and the IBEX 35 fell 3% to 8,101.199.

Banks led the decliners after Dexia shares plummeted 13.9% to €1.12 on concerns over its exposure to Greek debt. Dexia''s share plunged 37% in early trading - its lowest level ever.

The French and Belgian governments own stakes in Dexia following a €6 billion bailout in the wake of the collapse of Lehman Brothers. Yesterday, Moody''s warned that Dexia is facing a downgrade of its credit rating.

BNP Paribas slumped 4.9% to €27.32, Societe Generale fell 4.9% to €18.03, and Commerzbank declined 5.9% to €1.66.

Gainers & Losers

AB Volvo declined 2.9% to SEK 65.75 after the vehicle maker said it will reorganize its operations which will help the company to better utilize the global potential of the brands and products within the truck operations.

Deutsche Bank AG slumped 6% to €24.20 after the investment bank said it expects a ""profitable"" third quarter despite sequentially higher impairment charges relating to Greek sovereign debt.

Further, the company anticipates ""robust"" full-year 2011 earnings, but said the 2011 pre-tax target of €10 billion from its core businesses was ""no longer achievable.""

Merck KGaA fell 2.4% to €59.96 after the German drugmaker said it inked two agreements for collaboration of its Merck Serono division with Ono Pharmaceutical Co. Ltd. to strengthen its multiple sclerosis and cancer franchises.

UBS AG dipped 0.7% to Sfr10.02 after the Swiss bank expects to report a modest net profit for the third quarter. The result includes the previously announced $2.3 billion loss resulting from the unauthorized trading and approximately Sfr0.4 billion of restructuring charges associated with the firm''s cost reduction program.