Europe Looks to IMF to Bolster Rescue Fund; Banks Ratings Lowered

Arthi Gupta
30 Nov, 2011
New York City

European indexes traded higher after finance ministers in the region sought the help of the ECB and the IMF to increase the fund size to

[R]2:10 PM Frankfurt – European indexes traded higher after finance ministers in the region sought the help of the ECB and the IMF to increase the fund size to €1 trillion. Greece won the approval of its next tranche of loan worth €8 billion. S&P belatedly lowered ratings on 15 financial institutions.[/R]

The indexes in Europe traded higher after finance ministers focused on leveraging the rescue fund capital with the help of the European Central Bank and the IMF. The move will allow the rescue fund to increase to €1 trillion and purchase sovereign bonds.

The ECB has so far acquired sovereign bonds totalling 2% of the euro zone GDP compared to the Bank of England purchasing bonds worth 13% of UK GDP and the Federal Reserve in the U.S. buying bonds worth 13% of the GDP.

European markets edged higher after China lowered bank reserve requirement ratio by 50 basis points. In early cautious trading, the indexes declined after Standard & Poor''s downgraded a number of European and U.S. banks.

Euro-zone finance ministers have agreed to leverage the capacity of the European Financial Stability Facility by introducing sovereign bond partial risk participation and seek help of the IMF and the ECB, the fund said in a statement on Tuesday.

However, the talks on Tuesday failed to increase the EFSF from €440 billion.

""We agreed to rapidly explore an increase of the resources of the IMF through bilateral loans,"" Jean-Claude Juncker, head of the region''s finance ministers said, adding that the goal would be to allow the IMF to match the funds of the EFSF.

The meeting also decided to release the sixth loan installment to Greece worth €8 billion from the first €110 billion bailout package.

The ministers endorsed the payout after receiving a written commitment from Athens that it will fully adhere to the deficit cut plan.

Standard & Poor''s lowered its credit ratings on 15 financial institutions, mostly in Europe and the U.S.

The downgraded banks include among others Bank of America, Goldman Sachs, Citigroup, JPMorgan Chase., Barclays, HSBC Holdings Plc, Royal Bank of Scotland and UBS. The ratings were lowered by one notch.

The late downgrade of banks by a rating agency was yet another indication of how lax and slow the agencies are in catching up with market realities. Investors are increasingly concerned about the usefulness of the ratings and many are demanding the withdrawal of the licenses of these companies to issue ratings.

In Paris trading, the CAC-40 Index gained 25.35 or 0.8% to 3,052.08 and in Frankfurt, the DAX Index added 81.41 or 1.4% to 5,879.01.

The People''s Bank of China cut the required reserve ratio by 50 basis points to 21%, effective December 5, the first reduction since December 2008.

Euro-zone Jobless Rate Rises

The euro area jobless rate rose to 10.3% in October from 10.2% in September, Eurostat reported today.

In the EU27, the jobless rate was at 9.8% in October compared to 9.7% in September.

Euro Area Inflation Steady

Euro-zone inflation remained at the highest level since October 2008, flash estimates from Eurostat showed today.

Inflation was 3% in November, unchanged from October. The number has been staying above the central bank target of “below, but close to 2%” since December 2010.

Gainers & Losers

BASF SE rose 3% to €52.07 after the chemicals company estimated sales of approximately €115 billion by 2020, representing an average 6% increase per year. The company''s previous sales target was €90 billion.

Glencore International Plc climbed 0.7% to 382.85 pence after the mining and commodities trading company said it terminated the agreement with CST Mining Group regarding the acquisition of a 70% interest in Marcobre S.A.C., the sole owner of the Marcona Copper Property and the Mina Justa Project.

National Bank of Greece SA fell 1.6% to €1.88 after the Greece-based financial institution reported third quarter loss of €35.9 million or 3 cents loss per share compared to a profit of €113.3 million or 18 cents per share in the year-ago quarter.

Novartis AG declined 1% to Sfr48.36 after the Swiss pharmaceutical company said UK''s health cost body National Institute for Health and Clinical Excellence did not recommend the company''s eye drug Lucentis or ranibizumab for the treatment of diabetic macular oedema.

Sanofi SA gained 0.9% to €50.86 after the French drug maker confirmed its decades-long commitment to the fight against malaria, noting that the elimination of the disease has now become an achievable goal.