Europeans Agree to Lend to Banks, InBev to Buy Modelo

Arthi Gupta
29 Jun, 2012
New York City

European markets staged a rally after leaders agreed to use rescue funds to lend directly to banks and approved

[R]2:35 PM Frankfurt – European markets staged a rally after leaders agreed to use rescue funds to lend directly to banks and approved €120 billion stimulus program. Anheuser Busch InBev agreed to buy remaining stake in Mexico-based Modelo for $20 billion.[/R]

European leaders agreed to offer direct support to struggling banks in the region using two rescue funds but on the condition of establishing a regional supervision authority.

The leaders relaxed the earlier stance demanding greater austerity from the governments and closer scrutinies from various regional agencies before agreeing to offer direct lending to banks as long as countries comply with EU budget rules.

The move released tension temporarily in the bond market and also relived the pressure on the euro but also spread the risk across all members to support the struggling banks of Spain and the potential bailout of Italian banks later in the years.

The leaders under intense pressure from markets to deliver specific steps also agreed on a stimulus program of €130 billion that was previously agreed by four largest nations in the euro zone.

The decisions were announced by the European Council president Herman Van Rompuy after working through long hours well into the late night.

Financial markets welcomed the agreement and benchmark indexes soared more than 1.6% in the region. The direct lending from the rescue funds to banks will help Spain and potentially Italy to support its banking system without increasing nations’ debt.

Bond yields of Spain and Italy edged lower after the agreement but past market rallies have been brief and often followed by creeping skepticism.

Euro area inflation remained unchanged in June and German retail sales fell in May.

In Paris trading, the CAC-40 Index surged 63.25 or 2.1% to 3,114.93 and in Frankfurt the DAX Index edged higher 126.54 or 2.1% to 6,276.38.

For the week, the CAC-40 Index rose 0.8% and the DAX Index surged 2.2%.

The yield on Spain’s benchmark 10-year bonds dropped 36 basis points to 6.58%. Italian 10-year yields declined 25 basis points to 5.94%.

Euro-zone Inflation Stable

Euro-zone annual inflation remained unchanged at 2.4% in June, flash estimate issued by Eurostat showed today.

Inflation continued to stay above the European Central Bank's 'below, but close to 2 percent' target.

Separately, euro-zone's broad monetary aggregate M3 rose 2.9% from a year ago in May following a 2.5% rise in April, the European Central Bank said.

German Retail Sales Fall

German retail sales fell 0.3% on a monthly basis in May following a 0.2% drop in April, the latest data from the Federal Statistics Office showed today.

This was the second consecutive monthly decline and annually sales dipped 1.1% in May. Food, beverages and tobacco product sales in May climbed 0.1% and non-food sales fell 1.7% from May 2011.

French GDP Flat

The French economy stagnated in the first quarter of 2012 as previously estimated, final data from the statistics office Insee showed today.

The gross domestic product was flat in the first quarter after a 0.1% increase in the fourth quarter of 2011.

Household spending rose 0.2%, while investment dipped 0.7% in the first quarter.

UK Index of Services Rises

An indicator of service sector output in the United Kingdom increased in April compared to a year earlier, data from the Office for National Statistics showed.

The seasonally adjusted Index of Services increased 2% in April compared with the same month in 2011 and was flat compared to previous month.

AB InBev Acquires Remaining Stake in Modelo

Anheuser-Busch InBev NV/SA, the Belgian brewer reached an agreement to acquire the remaining stake in Grupo Modelo S.A.B. de C.V. that it does not already own for $9.15 per share in cash or about $20.1 billion.

The tender price represents a premium of approximately 30% to the closing price of Grupo Modelo series C shares on June 22. AB InBev already owns a 50.4% non-controlling stake in Modelo.

On a combined basis annual total sales would be 400 million hectoliters of beer with revenues of $47 billion.

Gainers & Losers

Accenture Plc increased 1.4% to $56.63 after the technology outsourcing company reported third quarter net revenues grew 6% to $7.2 billion. Profit in the quarter improved 9.6% to $689.2 million or $1.03 per diluted share from $628.0 million or 93 cents per share last year.

Corin Group Plc rose 1% to 50 pence after the orthopaedic devices distributor reached an agreement with LARS SA to extend the distribution agreement of the LARS ligament products until December 2016.

Credit Suisse Group AG slumped 2.3% to $17.43 after the financial services provider estimated profits across all divisions and at the group level.

Koninklijke KPN NV climbed 1.1% to €7.43 after America Movil S.A.B. De C.V. increased its stake in the Dutch telecom firm to 27.7%.

Melrose Plc edged higher 0.6% to 371 pence after the investment company’s wholly-owned subsidiary agreed to acquire Elster for $20.50 per American Depository share in cash for $82 per share in cash or a total of $2.3 billion.

The ADS offer price represents a 48.6% premium over the closing price on June 11.

Vivendi SA advanced 2% to €14.48 after the Chief Executive Officer Jean-Bernard Lévy stepped down after he disagreed with the strategic direction of the company with the board.