European Banks Downgrade; Record Yields in Italian Debt

Arthi Gupta
29 Nov, 2011
New York City

European indexes edged higher ahead of a meeting of euro area finance ministers today. Banking stocks declined after Moody''s placed on review for downgrade 87 European banks. Italy paid record yields in an auction of

[R]1:30 PM Frankfurt – European indexes edged higher ahead of a meeting of euro area finance ministers today. Banking stocks declined after Moody''s placed on review for downgrade 87 European banks. Italy paid record yields in an auction of €7.5 billion of bonds today.[/R]

European indexes edged higher on optimism that the euro zone finance ministers meeting later today in Brussels will finalize the region''s bailout fund.

The finance ministers from the 17 euro-zone members are meeting to decide on the guidelines for the European Financial Stability Fund and ministers are expected to approve the next €8 billion tranche of the €110 billion original Greek rescue bailout package created in May 2010.

The Eurogroup is expected to approve this tranche after receiving letters from Greek political parties expressing their commitment to the necessary deficit-cutting reforms.

Standard and Poor''s may downgrade the outlook on France''s triple A rating to ''negative'' within the next ten days, French daily La Tribune reported on Monday.

Moody''s Investors Service warned that it could downgrade the subordinated and junior debt of 87 European banks, citing the governments'' inability to support them amid the region''s mounting sovereign-debt problems.

This decision affects banks in 15 European countries with most banks in Spain, Italy, Austria and France are likely to be included. Banks declined after Moody’s warning.

Credit Agricole fell 0.9% to €4.39, Societe Generale dropped 0.9% to €17.19 and BNP Paribas gained 0.6% to €28.68.

In Frankfurt, Deutsche Bank climbed 1.3% to €26.94 and Commerzbank rose 1.8% to €1.33.

In Paris trading, the CAC-40 Index gained 22.90 or 0.8% to 3,035.83 and in Frankfurt the DAX Index added 39.91 or 0.7% to 5,784.46.

The Spanish 10-year bond yield closed at 6.658%.

The Belgian Treasury raised €2 billion or $2.73 billion in an auction of bonds maturing between 2018 and 2041 at a weighted average yield of 5.659% compared to 4.372% in the previous sale on October 31. Demand for the securities was 2.59 times the amount of notes sold, up from 1.65 times a month ago.

The Italian Treasury paid yields at euro-era highs at an auction of €7.5 billion of bonds today.

The Treasury sold €3.5 billion of a new three-year bond, €2.5 billion of 2022 bonds and €1.5 billion in 2020 bonds. The three-year bond yielded 7.89%. The treasury paid a yield of 7.56% on its March 2022 bond, up from 6.06% at the previous sale on October 28.

Demand for the 2014 bond was 1.5 times the amount sold, while the bid-to-cover ratio for the 2022 bond was 1.34 times. That compared respectively with 1.35 times and 1.27 times at the October 28 auction.

Euro-zone Sentiment Falls

Euro-zone economic sentiment fell to 93.7 in November from 94.8 in October, a monthly survey conducted by the European Commission showed today.

Gainers & Losers

Alpha Bank SA gained 3.1% to €0.74 after the banking and financial services company reported a nine-month net loss after impairments for the Greek government bond portfolio of €566.7 million compared to profit of €75.5 million in the year-ago period.

Total SA rose 0.9% to €37.35 after the French oil and gas company plans to invest billions of dollars in its chemical division over the next few years and also boost its presence in Asia, German newspaper Handelsblatt reported on Monday.

Qiagen NV climbed 1.5% to €10.52 after the assay technologies and equipment said that it would cut approximately 8% to 10% of its global workforce.

Rémy Cointreau SA increased 2.7% to €61.75 after the French liqueurs and spirits group reported first-half turnover increased 10.9% to €474.9 million from €428.1 million in the previous year. Net profit for the period surged 237% to €47.5 million from €14.1 million reported last year.