ECB May Face Losses on Greek Bonds; Ericsson, Novartis Net Plunge

Arthi Gupta
25 Jan, 2012
New York City

European markets declined after mixed corporate earnings as Germany sold 30-year bonds amidst strong demand. UniCredit planned to raise up to

[R]1:30 PM Frankfurt – European markets declined after mixed corporate earnings as Germany sold 30-year bonds amidst strong demand. UniCredit planned to raise up to €25 billion by way of covered bonds and E.On plans to cut 11,000 jobs worldwide.[/R]

European markets traded lower after mixed earnings. Ericsson and Novartis reported weaker-than-estimated quarterly earnings despite a surge in profit at the software and services provider SAP AG.

Talks between Greece and international lenders are likely to find a resolution by the end of the week and European leaders may have to accept 50% or more losses in the restructured bonds. So far, the Greek bonds of €55 billion held by the European Central Bank are not part of the restructuring and the central bank is expecting full repayment.

However, as the negotiations between private lenders and troika of international lender reach a critical stage, the ECB may have to accept losses like all other investors.

At the conclusion of two days meeting of euro zone finance ministers in Brussels, the European Union officials pressed for more growth measures and employment.

The European Union Council said that Hungary has failed to comply with its recommended measures to lower its budget deficit below the target set by the European Union of 3% of Gross Domestic Product.

In November 2008, Hungary obtained a €6.5 billion loan from the EU as part of a €20 billion package of assistance from international lenders.

In July 2009, the Council issued a revised recommendation, setting 2011 as the target year for reducing the deficit below 3% of GDP.

The Council found that while Hungary did lower its deficit within the target set by the European Union but the adjustments in the budget from sustainable and structural.

In Paris trading, the CAC-40 Index declined 26.82 or 0.8% to 3,295.83 and in Frankfurt the DAX Index edged lower 41.27 or 0.6% to 6,377.89.

Italian 10-year government bond yields rose 12 basis points to 6.30% and the yield on Spain’s benchmark 10-year bond was at 5.472%.

German Bond Auction

An auction of Germany''s 30-year bonds today saw strong demand.

The 3.25% Federal Bond maturing in July 2042 attracted bids of €5.042 billion against the €3 billion offered, Bundesbank said.

The yield on the 30-year debt declined to 2.62% from 2.82% in the previous auction on October 12. The bid-to-cover ratio rose to 2.1 from 1.1.

German Business Confidence Improves

German business confidence rose for a third month in a row in January. The business climate index rose to 108.3 in January from 107.3 in December, the Munich-based Ifo institute said today.

Gainers & Losers

E.On AG fell 1.3% to €15.76 after the German utility announced its plan to cut 11,000 jobs worldwide and aims to reduce costs by €9.5 billion through 2015.

LM Ericsson Telephone Co. plunged 15% to 58.55 kronor after the Swedish telecom equipment maker reported fourth quarter net sales rose 1% to 63.67 billion kronor from 62.78 billion kronor in the preceding year. Net income in the quarter plunged 66% to 1.15 billion kronor or 0.36 kronor a share from 4.32 billion kronor or 1.34 kronor a share reported a year ago.

For the full year, net income grew 12% to 12.19 billion kronor or 3.77 kronor a share from 11.15 billion kronor or 3.46 kronor a share last year. Annual sales improved 12% to 226.92 billion kronor from 203.35 billion kronor a year ago.

Novartis AG slumped 3.5% to Sfr50.20 after the provider of healthcare solutions reported fourth quarter net sales rose 4% to $14.78 billion from $14.20 billion a year ago. Net income in the quarter slumped 46% to $1.18 billion or $0.48 per share from $2.17 billion or $0.94 per share a year earlier.

For fiscal year 2011, net sales grew 16% to $58.57 billion and net income declined 7% to $9.25 billion.

Roche Holding AG dropped 2.4% to Sfr160.70 after the Switzerland-based pharmaceuticals and diagnostics company said it would make a hostile offer of $44.50 a share to acquire California-based Illumina, Inc., in an all-cash deal of about $5.7 billion.

SAP AG rose 0.5% to $58.06 after the German business software company reported fourth quarter software and software-related service revenue increased 14% to €3.720 billion.

Net income soared to €1.199 billion or €1.01 a share from €434 million or 37 cents a share in the previous year.

For the full year, total revenue increased 14% to €14.232 billion with a 16% rise in Software and software-related service revenue. Profit for the year climbed to €3.44 billion or €2.89 per share from €1.81 billion or €1.52 per share.

UniCredit SpA dipped 0.6% to €3.73 after the Italian lender said it plans to raise up to €25 billion through the sale of covered bonds, according to a regulatory filing. The company plans to use the proceeds to strengthen its capital position and to finance its mortgage loans operations.