Spanish Debt Auction at Record Yield; Euro Zone Banks Worries

Arthi Gupta
17 Nov, 2011
New York City

European indexes fell after Spain sold

[R]1:30 PM Frankfurt – European indexes fell after Spain sold €3.56 billion in 10-year bonds at a record yield. Financial stocks were the worst hit after ratings agency Fitch warned that it may lower its rating outlook for U.S. banks.[/R]

European indexes traded lower after ratings agency Fitch warned that the euro-zone contagion threatened the outlook for U.S. banks.

German Finance Minister Wolfgang Schauble warned that the financial crisis is beginning to impact the real economy and urged the euro zone to prevent contagion from spreading to banks.

Separately, Moody’s downgraded 12 state controlled banks in Germany and said they are less likely to receive government support.

Fitch predicted that U.S. banks could be greatly affected if the debt contagion continues to spread beyond the stressed European markets such as Greece, Ireland, Italy, Portugal, and Spain.

""Unless the euro-zone debt crisis is resolved in a timely and orderly manner, the broad outlook for U.S. banks could worsen,"" the agency said.

Banks and insurance companies traded lower.

In Germany, Deutsche Bank declined 2.1% and Commerzbank AG dropped 2.2%. In Italy, UniCredit dipped 0.1% and Intesa fell 1.7%. In France, BNP Paribas slumped 3.2%, Societe Generale slid 2.7%, and Banco Santander fell 1.2%.

Greek PM Wins Confidence Vote

The newly formed interim government in Greece led by Prime Minister Lucas Papademos won a confidence vote held in the country's parliament late on Wednesday, according to House Speaker Filippos Petsalnikos.

The new interim government secured the support of 255 lawmakers while 38 members voted against, seven lawmakers abstained from voting.

However, the immediate task Papademos faces is to tackle the deficit and implement reforms demanded by the troika of international lenders. Unions and political parties are expected to lead mass rally today opposing any more cuts in the government spending. The rally is expected to be largest since the end of the military rule in 1973.

Separately, the Greek Finance Ministry began talks with private sector bondholders and finalize with the Institute of International Finance on a bond swap that could reduce its debt by €100 billion.

In Italy, the recently appointed Prime Minister Mario Mont in his speech to parliament ahead of confidence vote heighted changes to tax system and pension and labor markets reforms.

Spain Auctions 10-Year Bonds

The Spanish Treasury issued €3.56 billion in 10-year bonds at a yield of 6.975% compared to 5.433% in the prior 10-year bond auction held on October 20. The bid-to-cover ratio declined to 1.54 compared to 1.76 on the previous occasion.

Spain's risk premium to German bunds has surge to a record high of 490 basis points since the creation of the euro.

In Paris, the CAC-40 Index declined 39.22 or 1.3% to 3,025.68 and in Frankfurt; the DAX Index edged lower 45.61 or 0.8% to 5,867.75.

The International Monetary Fund and the European Union said on Wednesday that Portugal’s budget 2012 is consistent with meeting the fiscal target of 4.5% of GDP in 2012. The country would be eligible to receive the next tranche of its bailout fund of €8 billion due in December and January based on the conclusion of this review.

European Commission President Jose Manuel Barroso said in a speech before the European Parliament on Wednesday that euro-zone is facing a ""truly systemic crisis"" that requires additional and very important measures.

Luxembourg Foreign Minister Jean Asselborn said in an interview to Deutschlandfunk radio today that the euro rescue fund need to be strengthened and European countries must implement the measures agreed at the October summit to resolve the debt crisis.

Spain's Growth Lower Than Expected

The Spanish economy may grow only 0.8% this year, well below the official target of 1.3%, Finance Minister Elena Salgado told the local radio COPE on Wednesday.

The lower than expected economic growth will also lower government tax revenues and increase the amount of money Spain has to borrow from financial markets, unless Spain can cut more spending.

Euro-zone Construction Output Eases

Construction output in the euro area increased 0.4% on an annual basis in September, slower than the 1.9% growth in August, revised down from 2.5%, data released by statistics office Eurostat showed today.

German Employment Rises

German employment rose 248,000 or 0.6% in the third quarter from a quarter ago, due to seasonal factors, the Federal Statistics Office said today.

Gainers & Losers

Air Berlin Plc slumped 3.4% to €2.56 after Germany's second-largest airline, said third quarter revenues grew 10.8% to €1.38 billion from €1.24 billion a year ago. Net profit plunged 77.8% to €30.21 million from €135.85 million last year. Earnings per share were 34 cents, lower than €1.15 a year ago.

Credit Suisse Group AG fell 2.6% to Sfr20.95 after the financial services company planned to initiate job cuts in the New York metropolitan region as part of its plans announced earlier in the month.

Gigaset AG declined 2.6% to €2.73 after the operating company in the telecommunication and accessories sector stated consolidated profit in the third quarter was €5.1 million compared with a deficit of €3.5 million in the comparable period last year.

Koninklijke Ahold NV rose 0.6% to €9.47 after the supermarket operator said third quarter net sales rose 2.5% to €6.86 billion from €6.69 billion in the same quarter last year. Net income in the quarter rose 15.2% to €257 million or 23 cents per share from €223 million or 19 cents per share last year.

voestalpine AG plunged 8.4% to €21.01 after the producer and distributor of steel and steel products reported first-half sales rose 15.2% to €5.98 billion from €5.19 billion in the prior-year period. Net profit in the period increased 38.6% to €346.1 million or €1.82 per share versus €249.7 million or €1.24 per share last year.

Wirecard AG gained 1.1% to €11.74 after the financial services and technology company reported third quarter consolidated revenues increased 19.2% to €84.5 million from €70.9 million in the comparable period. Profit in the quarter grew 21.3% to €16.7 million or 16 cents per share from €13.77 million or 13 cents in the prior-year quarter.