More Banks in Euro Zone Seek ECB Loans; Confidence Falls

Arthi Gupta
23 Nov, 2011
New York City

European indexes declined and more banks in the region accesses short term loans from the ECB. Hungary increased value-added tax to 27%, the highest in the European Union. France and Belgium wrangle over the bailout of Dexia. Germany failed to sell only 60% of

[R]3:30 PM Frankfurt – European indexes declined and more banks in the region accesses short term loans from the ECB. Hungary increased value-added tax to 27%, the highest in the European Union. France and Belgium wrangle over the bailout of Dexia. Germany failed to sell only 60% of €8 billion of in the latest auction.[/R]

European markets were cautious as Greece and Italy inch forward in implementing economic reforms and more banks turn to central bank for their short term financing.

The European Central Bank said Tuesday that 178 commercial banks in the euro zone accessed one-week loans and borrowed €247 billion compared to 161 banks that borrowed €230 billion in the previous week.

Bond markets were further unnerved after Germany failed to sell its entire €8 billion debt of 10-year bonds. The DFA, the debt agency said it managed to sell 60% of debt it had targeted but at a record low interest rate of 1.98%.

German finance ministry spokesperson Martin Kotthaus said, “The result does not represent any refinancing squeeze” and added “the balance of the debt will be sold in the next auction.”

In addition, Franco Belgian bailout of the Dexia SA bank may collapse as Belgium sought higher contribution from France.

The increase in central bank reliance only highlights the difficulties that banks are facing in the euro zone as banks stop lending to one another and the U.S. money market funds curtail their lending.

News from the global markets was also weak after the U.S. lowered its third quarter economic growth estimate to 2% from 2.5% and China’s latest private survey showed a decline in manufacturing activities.

Monti Meets Barroso

Italian Prime Minister Mario Monti met with EU Commission President Jose Manuel Barroso in Brussels on Tuesday as the nation prepares to finalize the economic reforms demanded by the EU.

Monti is scheduled to meet French Prime Minister Nicolas Sarkozy and German Chancellor Angela Merkel in Strasbourg on Wednesday and win an approval for a general framework of the reforms.

Th rise of Monti in European Union’s power circle shows the preference of political leadership after years of dealing with unpredictable Silvio Berlusconi as Italy squandered a decade of growth as competition from China intensified.

Greek Bailout Not Certain

In Greece, Antonis Samaras, the leader of the opposition New Democracy party is not willing to sign a pledge backing austerity measures under a bailout deal. The European Union and other lenders have refused to release the latest tranche of €8 billion without the written guarantee.

T-Mobile Sale Challenged

The U.S. Federal Communications Commission's Chairman Julius Genachowski opposed the proposed AT&T, Inc’s $39 billion acquisition of T-Mobile USA from Germany's Deutsche Telekom.

AT&T said it is disappointed with the FCC action of referring the anti-trust lawsuit concerning the company's proposed acquisition of T-Mobile to an administrative law judge and requiring the company to prove the deal is in the public interest.

The Hungarian government passed a law to increase its standard VAT rate by 2%, from 25% to 27%, the highest level in the EU, the government news agency MTI announced today.

In Paris trading the CAC-40 Index declined 0.39 or 0.01% to 2,871.46 and in Frankfurt trading the DAX Index edged higher 44.46 or 0.8% to 5,579.59.

Italian bond yields rose 9 points to 6.91%,Spanish yields gained 5 points to 6.65%, and the yield on 10-year French debt increased 10 basis points to 3.63%.

China’s Manufacturing Slowdown

Operating conditions across China's manufacturing sector declined in November, the latest survey results from Markit Economics showed on Wednesday.

The flash Markit/HSBC purchasing managers' index for the manufacturing sector declined to 48 in November from 51 in October. This was the lowest reading in 32 months.

Euro Area Confidence Deteriorates

Confidence among euro-zone consumers declined in November to reach its lowest level since August 2009, preliminary estimate from the European Commission showed.

Preliminary estimate from the European Commission showed that the confidence indicator for euro area fell to -20.4 in November from -19.9 in October.

Consumer confidence indicator for the European Union also declined to -20.7 in November from -20.2 in October.

Separately, euro-zone private sector activity contraction eased in November, flash data from Markit Economics showed Wednesday. The composite output index was at 47.2 in November, up from 46.5 in October.

Gainers & Losers

Commerzbank AG soared 4.7% to €1.20 after the German bank’s chief executive Martin Blessing said he is confident that the bank can recapitalize without requiring government aid.

Dexia SA, the Belgian-French financial institution soared 7.1% to €0.26 after France and Belgium struggle to approve €90 billion bailout, according to Belgian media reports.

De Standaard reports that the two countries are discussing cost distribution and that Belgium is looking to renegotiate the deal agreed with Paris and Luxembourg last month. Its aim is to get France to pay for a larger portion of the financing.

Iberdrola SA gained 0.1% to €4.62 after the Spanish power company said it secured a contract to develop six new wind farms in Extremadura.

Infineon Technologies AG climbed 3% to €5.68 after the German chipmaker proposed a 20% dividend increase to €0.12 per qualifying ordinary share.

Joyou AG rose 1.7% to €8.05 after the bathroom accessories supplier in China said revenues in the first nine months of 2011 rose 21.6% to €212.7 million from €175 million last year. Net profit in the period grew 27.4% to €23.3 million.

Nokia Oyj increased 1.2% to €4.24 after the Finnish mobile phone group is relocating its headquarters to London as part of a restructuring that may eliminate 4,000 jobs, according to the Independent.

Rio Tinto PLC fell 1.5% to 3,008 pence after the miner said that the Canadian competition bureau approved the purchase of Hathor Exploration Ltd. for C$4.70 in cash per common share.