European Indexes Higher; Italian Bonds Ratings Lowered

Arthi Gupta
05 Oct, 2011
New York City

European indexes braved market sentiment to trade higher. Banks were in focus after Dexia sought another bailout. Moody

[R]1:00 PM Frankfurt – European indexes braved market sentiment to trade higher. Banks were in focus after Dexia sought another bailout. Moody’s cut Italy''s government bond ratings by three notches with a negative outlook.[/R]

European indexes gained on optimism that finance ministers of the euro area are formulating measures to contain widening debt contagion in the region.

Though the policymakers are indicating several initiatives in place but no concrete steps are taken to arrest the growing fears of Greek default. Banks are reluctant in admitting that they may have to take at least 50% loss on their Greek holdings.

The market indexes traded higher but the events in the region indicated a different scenario.

Moody''s Investors Service downgraded Italy''s government bond ratings by three notches to A2 from Aa2, with a negative outlook, citing material increase in long-term funding risks for euro area sovereigns with high levels of public debt.

The negative outlook also reflects increased downside risks to economic growth due to macroeconomic structural weaknesses and a weakening global outlook, the ratings agency said.

German Chancellor Angela Merkel is meeting European Commission President Jose Manuel Barroso today to discuss the region’s debt crisis.

The Eurogroup meeting on Tuesday approved the package of six legislative measures designed to strengthen economic governance in the EU. The Council of the European Union also agreed on a draft regulation aimed at increasing transparency and reducing risk in the over-the-counter derivatives market.

In Paris, CAC-40 Index soared 58.01 or 2% to 2,908.56 and in Frankfurt DAX Index edged higher 73.65 or 1.4% to 5,290.36.

Italian 10-year bond yields and two-year note yields rose five basis points to 5.54% and 4.28% respectively.

Banks gained after France and Belgium agreed to support the Franco-Belgian bank Dexia SA. Dexia surged 6.7% to €1.08.

Dexia has €21 billion of bonds of Greece, Portugal, Spain and Italy. The troubled bank has €3.4 billion and Deutsche Bank holds €1.1 billion of Greek bonds.

France''s finance minister, François Baroin, suggested that a rescue plan for Dexia could be in place by tomorrow. Also, the Belgian government approved the creation of a ""bad bank"" for risky assets held by the troubled bank.

BNP Paribas soared 6.7% to €29 and Credit Agricole surged 8.4% to €5.10, Societe Generale climbed 5.1% to €18.97, Commerzbank rose 1.8% to €1.72, and Deutsche Bank advanced 5.4% to €25.96.

Euro-zone Composite PMI Drops

Euro-zone''s composite output index fell to 49.1 in September from 50.7 in August. The flash estimate for September was 49.2.

Gainers & Losers

Andritz AG soared 6.7% to €59.67 after the Austrian plant engineering group said it expects sales of over €4 billion for full year 2011. For the year 2012, the company anticipates higher earnings and plans to increase sales to more than €4.5 billion.

AXA SA climbed 5.5% to €9.40 after the French insurer said it remains fully committed to deliver on its Ambition AXA targets by 2015 and said its balance sheet remains ""robust"" at the end of September, despite the current market environment.

Bayer AG dipped 0.4% to €39.35 after the German chemical and pharmaceutical giant said it plans to expand its business in Japan, despite the difficult conditions following the earthquake and tsunami disaster, and continue to grow sales in the coming years.

DAB Bank AG rose 1.3% to €3.04 after the discount broker and direct retail bank agreed to sell a majority stake in its subsidiary and financial advisory services company, SRQ FinanzPartner AG, to Aragon AG. Financial terms of the deal were not disclosed.

Evotec AG surged 5.4% to €2.23 after the German drug firm entered into a second multi-year, multi-target drug discovery collaboration with Belgium-based UCB in the field of immunology. No financial details of the deal were disclosed.

Transocean Ltd. gained 1.3% to Sfr41.45 after the offshore drilling contractor’s subsidiary completed the acquisition of all shares of Aker Drilling ASA for NOK 26.50 per share.