ECB Lowers Key Rates and Expands Asset Purchase Program

Lucy Stoeva
10 Mar, 2016
New York City

European Central Bank expanded stimulus program in scope and scale and also cautioned future rate cuts are less likely after lowering rates today. Hannover R

[R]4:00 PM Frankfurt, Germany – European Central Bank expanded stimulus program in scope and scale and also cautioned future rate cuts are less likely after lowering rates today. Hannover Rück announced record 2015 profit and dividend. Lagardere tumbled 13%.][/R]

European Central Bank offered more stimulus steps, lowered rate deeper in the negative territory and expanded bond purchase program in size and scope.

European markets closed lower Thursday reversing the sharp rise earlier on larger than expected measures to stimulate the economy from the European Central Bank after central bank said more rate cuts are less likely.

The central bank cut its main refinancing rate to 0% and lowered the deposit rate deeper by 0.1 percentage point into negative zone to minus 0.4%.

The central bank increased the asset purchase program to €80 billion a month from €60 billion, far ahead of expectations and also expanded to program to corporate bonds.

Initially, the euro fell against the dollar but market indexes reversed the course after the President Draghi cautioned that future rate cuts are unlikely.

The banking sector benefited from ECB’s new refinancing round. Shares of Italy’s UniCredit added 2.3%, while Spain’s Banco Popular Español soared 4.6%.

Insurers were also on the rise after British insurer Aviva and reinsurer Hannover Rück posted upbeat annual results.

On the negative side, oil and energy companies declined after Brent crude futures slipped 2.26% to $40.14, while WTI crude oil dropped 1.59 % to $37.68.

The FTSE 100 index fell 64.91, or 1.06%, to 6,080.41, while the DAX index declined 140.57, or 1.45%, to 9,582.52.

In Paris, the CAC 40 index shed 30.95, or 0.70%, to 4,394.70.

Aviva Plc advanced 1.74% to 467 pence after the British insurer said it would achieve its target of £225 million in integration synergies one year ahead of schedule.

The company reported a solvency capital ratio of 180%, sufficiently high to cover underwriting, investment and operational risks under the new European rules.

Operating profit was £2.7 billion, above the previous forecast for £2.49 billion.

The company announced total 2015 dividend of 20.8 pence, up 15% from the 2014 dividend.

Hannover Rück SE added 1% to €95.57 after the German reinsurer announced record 2015 net profit and dividend of €4.75 per share.

The company plans to focus on earnings, not premiums, and may pay a special dividend to shareholders, according to CEO Ulrich Wallin.

Premiums already increased 20% in 2015 and are expected to remain stable this year.

Net profit reached €1.15 billion in 2015 and the insurer estimated net profit of at least €950 million in 2016.

Hannover Re also said it anticipates a difficult year for reinsurers amid fierce competition and low interest rate levels.

K+S AG dropped 10.22% to €19.82 after the German fertilized company released its full-year financial results and warned 2016 to be a challenging year.

Revenues grew 9% to €4.18 billion in 2015, while operating income surged 22% to €782 million from the previous year.

The company increased dividend to €1.15 per share from €0.90 in 2014.

However, the company warned that the mild winter led to lower demand for de-icing salt, and the lackluster global growth will hurt 2016 sales and profits.

K+S forecasted a moderate decrease in 2016 revenues, but a significant drop in EBITDA and operating profit.

Lagardere SCA tumbled 13.2% to €22.74 after the French media and publishing company posted a disappointing guidance and said its CFO, Dominique D’Hinnin, would leave the company after 26 years.

In 2015, operating margin improved to 5.3% from 4.8% a year ago.

Recurring EBIT was €378 million, compared with €342 million in 2014, while adjusted net profit rose to €240 million from €185 million in the previous year.

The ordinary dividend was kept at €1.30 per share, matching the payout in the previous year.

For 2016, the media company projects EBIT to increase 10% to €400 million.