Spanish Debt Auction Subdued, Cyprus Seeks Bailout

Arthi Gupta
26 Jun, 2012
New York City

The European indexes fell after 28 Spanish banks were downgraded. Spain raised

[R]12:30 PM Frankfurt – The European indexes fell after 28 Spanish banks were downgraded. Spain raised €3.08 billion from the sale of its short-term debt in an auction today. Credit Suisse plans to slash one third senior jobs at its European investment banking.[/R]

European markets edged lower ahead of the summit of regional leaders and stress in peripheral bond markets persisted. Spain completed its latest targeted debt auction but interest from foreign participants was weak and a rating agency lowered its views on banks.

Separately, Cyprus the fifth euro-zone country asked financial support from the European Financial Stability Fund to recapitalize its ailing banks. Cyprus has suffered with its heavy exposure to Greek economy as Greece struggles with shrinking economy for the third year in a row.

In Paris trading, the CAC-40 Index declined 14.16 or 0.5% to 3,007.72 and in Frankfurt the DAX Index edged lower 18.95 or 0.3% to 6,115.50.

The yield on Spain’s benchmark 10-year bonds rose six basis points to 6.70%. Italian 10-year yields climbed seven basis points to 6.08%.

Spanish Banks Downgraded

Rating agency Moody''s Investors Service downgraded by one to four notches the long-term debt and deposit ratings for 28 Spanish banks and two issuer ratings.

The short-term ratings for 19 banks have also been downgraded between one and two notches. The affected banks include two of the country''s largest lenders: Banco Santander S.A. and Banco Bilbao Vizcaya Argentaria, S.A. among others.

Moody''s said the downgrades reflect its assessment of the reduced creditworthiness of the Spanish sovereign as well as its expectation that the banks'' exposures to commercial real estate will likely cause higher losses.

Spanish Bond Auction

The Spanish Treasury raised €3.08 billion from the sale of its 3- and 6-month bills in an auction today with the targeted sales of as much as €3 billion.

The agency sold €1.60 billion of the 3-month paper at an average yield of 2.362% compared with 0.846% at the last auction on May 22. The bid-to-cover ratio for the 3-month T-bill fell to 2.60 from 3.95 in May.

Spain also sold €1.48 billion of the 6-month debt at an average yield of 3.237% compared with 1.737% last month. The bid-to-cover ratio for the six-month bills was 2.82 compared with 4.3.

Gainers & Losers

Anheuser-Busch InBev NV/SA fell 0.7% to €56.34 after the Belgian brewer confirmed media speculation that it is in talks to buy the remainder of Mexican brewer Grupo Modelo S.A.B. de C.V.

AB InBev already owns a 50.4% non-controlling stake in Modelo.

Credit Suisse Group AG dropped 0.7% to Sfr17.33 after the Swiss financial services company is planning to cut as much as one-third of senior jobs at its European investment banking department, according to media reports on Monday. The latest round of job cuts is part of the 3,500 job cuts announced last year.

Koninklijke Wessanen NV soared 5% to €2.35 after the organic food producer started the divestment process of its U.S. subsidiary American Beverage Corp. The company said it intends to use the proceeds from the sale primarily to further grow its European activities.

Porsche Automobil Holding SE slumped 3.5% to €38.35 after the auto maker guided a ""significant positive profit"" for the group before special items in the current year.

TeliaSonera slid 0.4% to SEK 42.41 after the telephone company and mobile network operator acquired 85.6% of TEO LT. The acquisition price is 0.637 cents per share in cash and the total value of the takeover bid amounts to €76 million.