European Markets Drop 2%; Vestas, Impregilo, EADS Fall

Devan Biswas
09 Nov, 2011
New York City

European markets were on the defensive after investors face a protracted political wrangling in Italy and Greek leaders struggled for the third day to appoint a new government. Bond markets were nervous with Italian yields surging to new high of 7%. Vestas Wind Systems cut its annual outlook.

[R]4:30 PM Frankfurt – European markets were on the defensive after investors face a protracted political wrangling in Italy and Greek leaders struggled for the third day to appoint a new government. Bond markets were nervous with Italian yields surging to new high of 7%. Vestas Wind Systems cut its annual outlook. Daimler AG may sell its EADS stake to German bank.[/R]

European markets reversed earlier enthusiasm after Italian Prime Minister Silvio Berlusconi offered his conditional resignation.

The market sentiment soured after a realization that the Italy’s problems are deeper and current political wrangling is likely to persist several more months.

The euro came under pressure and dropped 1% against the dollar and Swiss franc and the yields on the German bunds declined. Italian bond yields surged above 7%, the level that may blunt the recent reforms impact.

The market stresses were visible the most in the bond market with yields of Spain, Portugal and France rose. German bund and the U.S. Treasury yields rose on the perceived safety of the bonds.

In Paris, the CAC-40 Index fell 62.85 or 2% to 3,080.45 and in Frankfurt the DAX Index decreased 132.05 or 2.2% to 5,829.39.

All eight major markets in Europe closed lower. The index in Switzerland declined 1.1%, in Stockholm and Athens fell 2.6%, in Spain dropped 2% and in Milan plunged as much as 4.2% before recovering to a decline of 3.2%.

Greek lawmakers struggled for the third day to form the next unity government and appoint a new prime minster. The state TV in Athens said that President’s office is expected to announce a new cabinet and prime minister as early as late this evening.

The choice of two largest ruling parties, the former vice-president of the European Central Bank Lucas Papademos was dropped after he laid out conditions that neither party were ready to agree on.

Yields on 10-year Italian bonds increased to 7% before falling back to 6.99% and the spread with the German bunds increased to 5.2%. German bunds declined 5 ticks to 1.75%.

Italian President urged politicians to bridge differences and implement austerity measures. Girgio Napolitano noted in a speech, “Italy must regain credibility and confidence” of the financial markets and “get out from a dangerous squeeze” on public debt and on the conditions facing our banking institutions.

Gainers & Losers

Impregilo SpA declined 2.2% to €2 after the largest Italian construction company reported lower nine month operating profit and kept its annual earnings outlook intact.

The group order backlog increased to €22 billion and the company said total net debt rose to €596 million compared to €313 million at the end of 2010 on the account of waste management contracts in the Campania region of Naples.

EADS NV declined 4.3% to €19.95 after the possibilities increased that Germany acquire at least part of the holding in the company controlled by Daimler AG.

The auto maker has been looking to divest its holding in the aerospace company and focus on automotive operations.

However, Daimler has not secured any buyer and German government is keen in keeping the stake in the company in German control. Daimler controls 15% economic interest and 22.5% voting stake in the company.

German controlled development bank KfW is expected to take at least partial stake on behalf of the German government from Daimler.

Deutsche Bank AG decreased 4.5% to €27.25, BNP Paribas SA fell 3.9% to €30.10 and Societe Generale SA declined 5.3% to €17.75.

Intesa Sao Paolo SpA decreased 8 cents to €1.12 and UniCredit SpA decreased 6 cents to 74 cents.

BMW AG decreased 3.1% to €56.59, Volkswagen AG decreased 1.9% to €114.45 and Daimler AG fell 90 cents to €33.37.

Vestas Wind Systems A/S chief executive Ditlev Engel said he anticipated fierce competition in the years ahead. The stock dropped as much as 2.5%.

The company said full year revenues are expected to decline to €6.4 billion from its August estimate of €7 billion and margins are expected to fall to 4% from 7% and more shipment delays are possible.

Third quarter loss before interest and taxes was €92 million compared to €271 profit a year ago. Second quarter earnings were €55 million as reported in August and the company also confirmed new orders in 2011 were between 7,000 megawatts and 8,000 megawatts.

Vestas also abandoned its 2015 plan to achieve €15 billion in revenues and EBIT margin of 15% on weak revenues outlook and higher costs.

The company also said it will eliminate costs by at least €150 million that may lead to job losses to compensate cost increase for some parts.