European Agreement Lifts Indexes 5%; Deutsche Bank, BNP Paribas Vault 15%

Devan Biswas
27 Oct, 2011
New York City

European markets surged after the European Union leaders agreed on a plan to restructure Greek debt, ask banks to recapitalize and increase the size of the rescue fund with the help of outside investors. Banks soared in Frankfurt, Milan and Paris.

[R]3:30 PM Frankfurt – European markets surged after the European Union leaders agreed on a plan to restructure Greek debt, ask banks to recapitalize and increase the size of the rescue fund with the help of outside investors. Banks soared in Frankfurt, Milan and Paris.[/R]

European indexes surged after leader agreed on a plan to restructure Greek debt, ask banks to recapitalize and set the target to increase rescue fund to €1 trillion.

French President Nicholas Sarkozy announced the agreement after ten hours of marathon negotiation after mid-night with bankers, heads of states and policy makers.

Sarkozy said banks have agreed on a “voluntary” 50% reduction in Greek debt to €102 billion and allow Greece to keep its debt burden to 120% of its GDP in the rest of the decade.

Greece will also offer €30 billion cash incentive to banks to soften the blow of debt cut and the rest of €70 billion will be exchanged for 30-year bond for 6%.

The €30 billion assistance will be given to local banks that hold between €45 billion and €50 billion. Greek companies, banks and investors hold in all €80 billion of Greek bonds.

The agreement was also reached on asking banks to recapitalize by tapping additional €106 billion of new capital. Three largest French banks said they do not need help from the government to raise capital.

However, investors are still not convinced how the European Union will leverage its rescue fund from the current €440 billion to €1 trillion. French President Sarkozy is expected urge China and Japan to participate in the fund.

The euro surged to $1.401 in trading on the agreement.

In Paris, the CAC-40 Index added 170.23 or 5.4% to 3,393.85 and in Frankfurt the DAX Index edged higher 299.41 or 5% to 6,315.48.

The indexes in Stockholm added 4%, in Madrid and Milan edged higher 4.5% and in Zurich gained 2.2%. The index in Athens rose 3.3% and in UK gained 2.9%.

Yields on German bonds increased 11 basis points to 2.16% and Spanish 10-year Treasury yield fell 15 basis points to 3.14% and Italian 10-year bond yield declined 10 basis points to 5.83%, after the release of the agreement.

Italy is scheduled to sell as much as €8.5 billion of 3- and 10-year bonds on Friday.

Gainers & Losers

Deutsche Bank AG soared 15% to €32.64, BNP Paribas SA rose 17% to €35.35 and Societe Generale SA surged 21% to €22.72.

Intesa Sao Paolo SpA closed up 9% to €1.39 and UniCredit SpA increased 7.8% to 94 cents.

HSBC Holdings plc increased 6.1% to 558.30 pence and Barclays soared 18% or 32.30 pence to 210.60 pence.

Credit Suisse Group AG soared 11% and UBS AG vaulted 9% in New York trading.