European Leaders Search for Capital; Banks, Greece in Focus

Arthi Gupta
24 Oct, 2011
New York City

European leaders agreed to ask banks to raise

[R]2:00 PM Frankfurt – European leaders agreed to ask banks to raise €100 billion and explore ways to access capital from Asia, Middle East and the IMF to bolster its rescue fund and approved the sixth tranche of Greek aid of €8 billion. Peabody Energy and ArcelorMittal acquired a majority interest in Macarthur Coal.[/R]

European indexes traded higher after European leaders appear to make a progress on Greek debt crisis, bank recapitalization plan and how to leverage the rescue fund.

The leaders pledged to release details of the agreement and final loss that the banks will have to take in Greek bonds on Wednesday.

However, financial markets were unnerved after the EU members sought the additional financing from countries outside the region to bolster its rescue fund above $1.5 trillion. Italy also faced direct pressure from Germany and France to “leave within its means” and lower its spending and devise a plan to lower its debt.

European leaders said on Sunday at the meeting in Brussels that they are considering ""limited"" changes to the European Union Treaty, if needed, along with further strengthening of economic convergence within the euro area.

The leaders also pledged the fiscal integration and deepen the economic union, including exploring the possibility of limited treaty changes.

European Commission President Jose Manuel Barroso said that a decision on increasing the firepower of the EFSF will be taken by Wednesday.

The European Union finance ministers on Friday agreed to disburse the next tranche of financial aid to Greece, worth €8 billion.

Also, the European Banking Authority informed the EU finance ministers that banks may need between €100 billion and €110 billion of new capital and increase tier 1 capital ratio to 9%.

The EBA also said recapitalization needs may include the €46 billion in funds already earmarked for bank support under the EU/IMF bailout package for Ireland, Greece and Portugal.

In Paris, the CAC-40 Index declined 9.61 or 0.3% to 3,161.71 and in Frankfurt; the DAX Index edged higher 204.48 or 3.6% to 5,970.96.

Euro-zone Private Sector Activity Drops

Euro-zone private sector economy contracted in October at the fastest rate since July 2009. The flash composite output index fell to 47.2 in October from 49.1 in September.

German Factory Sector Falls

Germany''s manufacturing sector decreased in October, preliminary data from a survey by Markit Economics showed. The flash purchasing managers'' index for the manufacturing sector fell to 48.9 in October from 50.3 in September, marking the fastest decline since June 2009.

ArcelorMittal Acquires Controlling Stake in Macarthur Coal

Peabody Energy Corp. and ArcelorMittal announced that their joint venture PEAMCoal Pty. Ltd. had relevant interest in approximately 59.85% of Australia-based Macarthur Coal Ltd.

The stake increase was possible after China based Citic Resources agreed to sell its stake.

The companies noted that their takeover bid for Macarthur is now unconditional.

Gainers & Losers

Actelion Ltd. rose 1.4% to Sfr31.67 after the Swiss biopharmaceutical company said a Californian court has granted its motion for a new trial in its licensing dispute with Japan''s Asahi Kasei Pharma Corp., unless Asahi agrees to reduce its damages claim by November 10.

Novartis AG gained 0.2% to Sfr51.80 after the Swiss drug maker said three Phase II trials with AIN457 (secukinumab) showed a quick and significant improvement of symptoms in patients with moderate-to-severe plaque psoriasis.

Renault SA climbed 0.1% to €27.56 after the French car maker expects 2011 auto sales to increase between 2% and 8% growth, reports said citing an interview by chief operating officer Carlos Tavares to the industry publication Automotive News Europe.

Safran SA increased 1.1% to €22.44 after the French aerospace supplier said it signed a revolving credit facility with a group of leading international banks for €950 million.

TomTom NV surged 19.5% to €3.65 after the Netherlands-based manufacturer of portable navigation devices reported third quarter revenue declined 10.3% to €336.45 million from €374.92 million in the same period last year. Net income in the quarter rose 50.2% to €28.94 million or €0.13 per share versus €19.26 million or €0.09 per share in the same quarter last year.