BBVA Drags Europe Lower

Elena
16 Feb, 2007
New York City

European stocks closed moderately down at the end of the week, pressured by a weak opening of U.S. markets and losses for Spanish banking giant BBVA. Shares in BBVA lost 2.4% in Madrid after it announced a deal to buy Compass Bancshares for $9.6 billion and said it would issue 196 million shares to fund the purchase. The U.K. FTSE 100 lost 0.2%, the German DAX 30 lost a fraction of a percentage point at 6,957.07 and the French CAC-40 lost 0.1%.

European stocks closed moderately down at the end of the week, pressured by a weak opening of U.S. markets and losses for Spanish banking giant BBVA. Wall Street started trading lower after a bigger-than-expected drop in housing starts and a cautious outlook from Microsoft Corp. Shares in BBVA lost 2.4% in Madrid after it announced a deal to buy Compass Bancshares for $9.6 billion and said it would issue 196 million shares to fund the purchase. In corporate news, shares in catering firm Compass Group rose 0.9%. Chocolate firm Barry Callebaut rose 10% in Switzerland after it said it would broaden its strategic collaboration with food giant Nestle. Tire maker Michelin gained for a second straight session, up 3.3% after Credit Suisse upgraded its stock to neutral from underperform. DaimlerChrysler added 1.3%, following a report that General Motors is in talks to buy all of Chrysler. The U.K. FTSE 100 lost 0.2% at 6,419.50, the German DAX 30 lost a fraction of a percentage point at 6,957.07 and the French CAC-40 lost 0.1% at 5,713.59.

Crude oil prices rose above $58. Light, sweet crude March delivery gained 73 cents to $58.72 a barrel. Heating oil added 2 cents to $1.6488. Natural gas jumped 21 cents to $7.498 per 1,000 cubic feet. London Brent gained 71 cents to $58.31. The U.S. dollar was mixed against its major currency rivals. The euro was quoted at $1.3137, down from $1.3142. The dollar bought 119.22 yen, up from 119.18. The British pound was quoted at $1.9502, down from $1.9511. Gold in London traded at $665.10 per troy ounce, up from $664.75.


[R]11:30AM U.S. stock markets turned to profit taking.[/R]
U.S. stock markets turned to consolidation of recent gains ahead of a three-day weekend. Stocks were pressured by a plunge in new housing starts and a sales warning from Microsoft Corp. ((MSFT)). The Dow component weighed on tech stocks with a decline of 2.3% after its CEO Steve Ballmer said analyst sales forecasts for Vista operating system might be too high. Homebuilding stocks moved notably lower. Shares of Hovnanian Enterprises ((HOV)) lost 1%, Champion Enterprises ((CHB)) dropped 2%, as well as homebuilders KB Home ((KBH)) declined 1.7%, and Toll Brothers ((TOL)) slipped 1.1%.

By sectors, real estate investment trusts, mining and computer-related stocks declined, while banks, natural gas and airlines moved higher. AMR ((AMR)) was also in the spotlight, rising 2% on speculation that the airline is a buy-out target of a group including the Goldman Sachs Group. Compass Bancshares ((CBSS)) surged 6% after Spanish financial group Banco Bilbao Vizcaya Argentaria agreed to acquire it for $9.6 billion in cash and stock. Goodyear Tire & Rubber ((GT)) dropped 3% after it reported a wider loss and operating earnings that missed estimates. In late morning trading, the Dow fell 7.21, or 0.06%, to 12,757.80. The Standard & Poor''s 500 index was down 2.73, or 0.19%, to 1,454.08, and the Nasdaq composite index dropped 6.32, or 0.25%, to 2,490.78. Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.69% from 4.71% late Thursday.


[R]9:45AM U.S. stocks opened lower on sharp drop in housing starts and a cautious outlook for Microsoft.[/R]
U.S. stocks opened lower Friday ending a recent winning streak. Market sentiment was affected by in-line inflation numbers, a huge drop in housing starts, and a cautious outlook from Microsoft. Housing stocks moved notably lower after the Department of Commerce reported that housing starts plunged unexpectedly 14.3% to an annual rate of 1.408 million units in January from a revised 1.643 million unit rate in December. According to another report released by a trade group for real estate agents, prices for single-family homes fell in more than half of the nation’s 149 biggest metropolitan areas in the last three months of 2006. The median price of single-family homes fell 2.7% to $219,300.

Technology stocks moved to the downside after Microsoft ((MSFT)) said late Thursday that analyst revenue forecasts for the Vista operating system were too optimistic. The stock slipped 2% in early trading. Weakness was also visible in the biotechnology, brokerage, and defense sectors. Among gaining stocks, AMR Corp. ((AMR)) rose 4% on bid speculation. Compass Bancshares ((CBSS)) surged 6% after Spanish financial group Banco Bilbao Vizcaya Argentaria agreed to buy the regional bank for $9.6 billion in cash and stock.

Among companies driven by analyst comments, Alltel ((AT)) fell 1.8% after Citigroup downgraded its rating on the telecommunication services provider to hold from buy. On the other hand, shares of Terex ((TEX)) jumped 3% after Citigroup upgraded its rating on the capital equipment manufacturer to buy from sell. Citigroup also raised its price target on the stock to $78 from $60. In midmorning trading, the Dow fell 16.34, or 0.13%, to 12,748.34. The Standard & Poor''s 500 index was down 4.71, or 0.32%, to 1,452.10, and the Nasdaq composite index dropped 13.16, or 0.53%, to 2,483.94. Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.69% from 4.71% late Thursday.

[R]Housing starts plunged 14% in January.[/R]
The Department of Commerce released its highly anticipated report on housing starts in the month of January on Friday, showing that housing starts fell much more than economists had been expecting. The report showed that housing starts fell 14.3 percent to an annual rate of 1.408 million units in January from a revised 1.643 million unit rate in December. With the decrease, housing starts fell to their lowest rate since August of 1997. Economists had expected a more modest decline to a 1.600 million unit rate compared to the 1.642 million unit rate originally reported for the previous month. The steep drop in housing starts was partly due to a substantial decline in housing starts in the West, which fell 28.5 percent in January. Housing starts in the South and Midwest also showed double-digit percentage declines, while housing starts in the Northeast bucked the downtrend. The report also showed that building permits, an indicator of future housing demand, fell 2.8 percent to an annual rate of 1.568 million units in January from the December rate of 1.613 million units. The drop in building permits also exceeded economist estimates, which had called for a decrease to a 1.590 million unit rate. The data may raise some concerns about the strength of the housing market even though some analysts have predicted that the market is nearing a bottom.


[R]9:30AM London equities declined on Friday on fading bid talks, miners.[/R]
The UK market was lower on Friday. In mid-day trade, the FTSE 100 was 0.2% lower at 6,422.4, down 11 points.

Advancers

Upbeat trading statement from Compass Group, the largest contract caterer in the world, sent its shares 2.2% higher. Kingfisher, the retail company behind the Homebase DIY chain was boosted by 3.1% after SG Securities increased the broker rating on the stock to buy from neutral. Retailer Next also made gains after Goldman Sachs changed its stance on the stock to buy from neutral and raised its price target.

Boeing and Lockheed were reportedly both considering making UK acquisitions in a move designed to leave them well positioned to win British arms contracts moved shares in the sector, especially among mid-cap stocks. Cobham was 0.7% higher and Meggitt added 1.1%. Isoft, the healthcare software provider, rose 8.3% after IBA Health of Australia confirmed it was in talks with the company about a potential recommended all-paper offer.

Decliners

The mining sector was leading decliners as its volatile trading continued to track metals prices on commodities markets. BHP Billiton fell 1.1%, Antofagasta was 1.3% weaker and Lonmin lost 1.2%. Press reports that US private equity house Cinven was losing interest in bidding for Sainsbury sent the supermarket chain 0.7% lower.

SABMiller retreated from gains made in the previous session as hopes for consolidation among international brewers died away. Reports linking Anhheuser Busch and InBev with a potential merger generated gains across the sector on Thursday, but looked only to have short-term impact as SABMiller fell 1.3%.


[R]9:00 AM Market futures pointed lower. Microsoft weighed.[/R]
U.S. stock futures turned lower on Friday, with Microsoft ((MSFT)) weighing on sentiment as it cautioned that analysts were too optimistic about the sales of Vista operating system. The stock slipped 1.6% in the pre-open. On a positive note, shares in AMR ((AMR)), parent of American Airlines, rose 4% on news that it is a buyout target of a group including Goldman Sachs and British Airways. In other deal news, Boeing ((BA)) and Lockheed Martin ((LMT)) are reportedly considering buying U.K. defense companies including Ultra Electronics. In the financial sector, Compass Bancshares ((CBSS)) gained 6% after Spanish Banco Bilbao Vizcaya ((BBV)) agreed to buy the company for $9.6 B.

Among other pre-market highlights, Coca-Cola ((KO)) and Pepsi ((PEP)) were upgraded to buy from neutral at Goldman Sachs. Dow component Honeywell ((HON)) gained 1.7% the pre-open after announcing a new $3 billion stock repurchase program. Goodyear Tire & Rubber ((GT)) dropped 2.4% after the tire maker posted a wider Q4 loss. Investors were also digesting data showing that the producer price index fell 0.6% in January, matching the average economist estimate. Excluding food and energy, core PPI rose 0.2%, also in line with expectations. In another report, U.S. housing starts fell 14% to the a seasonally-adjusted annual rate of 1.408 million, the lowest rate for starts since August 1997, and well below expectations of a 2% decline. S&P 500 futures slipped 1.30 points to 1,458.30 and Nasdaq 100 futures eased 3.50 points lower to 1,827.50. Dow industrial futures dipped 2 points to 12,785.

[R]Wholesale prices fell in line with estimates.[/R]
Friday morning, the Department of Labor released its closely watched report on wholesale prices in the month of January, showing that prices fell in line with economist estimates amid a steep decline in energy prices. The Labor Department said that its producer price index fell 0.6 percent in January following an unrevised 0.9 percent increase in December. The decrease in prices came in line with economist expectations. The pullback in prices was largely due to a steep decline in energy prices, which fell 4.6 percent in January after rising 2.2 percent in December. A 13 percent decline in gasoline prices contributed to the overall drop in energy prices. However, the drop in energy prices was partly offset by a 1.1 percent increase in food prices.

The increase in January came after a 1.5 percent increase in the previous month and was partly due to a rebound in beef and veal prices. The report also showed that the core producer price index, which excludes food and energy prices, rose 0.2 percent in January, matching the increase in the previous month. The increase also came in with economist estimates. The drop in overall prices and the modest increase in core prices are likely to help offset concerns about the pace of inflation. In Congressional testimony this week, Federal Reserve Chairman Ben Bernanke said that there are signs that inflation pressures are easing. While the wholesale price data may generate some optimism about the possibility of lower interest rates, many are likely to wait for the release of the Labor Department''s report on consumer prices next Wednesday before drawing any conclusions.


[R]8:00 AM Banco Bilbao Vizcaya agreed to buy Compass Bancshares for $9.6 B.[/R]
Banco Bilbao Vizcaya Argentaria ((BBV)) agreed to buy Compass Bancshares ((CBSS)) for $9.6 billion. The second biggest bank in Spain said it will swap 2.8 of its own shares for each share in Compass Bancshares, or pay $71.82 a share in cash, representing a 16% premium to the average closing price over the last ten days. BBVA has been continuously expanding in the U.S. since 2004, with the acquisition of Valley Bank, Laredo National Bancshares, Texas Regional Bancshares and State National Bancshares. The acquisition is the latest in a string of deals, as well as the biggest BBVA has ever made, and will launch the Spanish bank into the top 20 U.S. operators. It will provide BBVA with a another 165 branches in Texas, making it the biggest regional player in the state. The deal took analysts by surprise, as they had been expecting the bank to continue its growth plans after the performance of its recent deals in the U.S has been assessed. Shares in BBVA fell 2.4% in midday Madrid trading. Shares in Compass rose around 7.5% on Thursday on speculation the bank was a bid target.


[R]7:30AM Asian markets declined on Friday with Japan falling on profit-booking.[/R]
Asian market ended mixed on Friday. Tokyo''s Nikkei 225 Index ended 0.1% lower, falling 21.58 points to 17,875.65. Among the advancers in Tokyo, Canon Inc. rose 3.8%. The camera maker announced it plans to spend up to 100 billion yen ($837.98 million) to buy back as many as 17 million shares. Brewery group Sapporo Holdings shares rose 12.6% after U.S. hedge fund Steel Partners announced it planned to spend up to 150 billion yen to raise its stake in the company from 18% to 66.6%. Toyota Motor eased 0.1%, while Honda fell 2.5%. Sony Corp reversed earlier losses to finish up 1.1%.

Hong Kong Hang Seng edged higher 0.14% to 20,567.91. The market was under a little bit of pressure mainly because of weakness in Japan. In the short term, the market is likely to continue to be quite volatile because investors have adopted a relatively short-term trading strategy. Financial markets in Hong Kong will be closed Monday and Tuesday. Around the region, Australia S&P/ASX 200 fell 0.6% to 5,935.5, Singapore Straits Times Index lost 0.5% to 3,236.93, and Thailand SET Index fell 0.8% to 688.

However, South Korean Kospi index gained 0.4%, to 1,448.81, Malaysia KLSE Composite Index added 0.4% and Indonesia Composite Index was up 0.2%. Shanghai Composite Index in China rose 0.2% to a record 2,998.46. The index also had hit an intraday record, at 3,036.35. After the close of trading on Friday, the People''s Bank of China said it raised banks reserve requirement ratio by 0.5%, effective from Feb 21, in an attempt to control better rapid credit growth and surging liquidity.


[R]6:30AM European markets declined on Friday led lower by miners, banks.[/R]
European markets were lower on Friday. In early trade, Frankfurt Xetra Dax fell 0.2% to 6,946.7, the CAC 40 in Paris lost 0.3% to 5,706.71 and London FTSE 100 shed 0.2% to 6,421.5.

Advancers

Gecina, the French property group, gained 7.2% after reporting net profit nearly trebled in 2006 thanks to rising rental revenues and growth in the value of its property portfolio. Michelin, the French tyremaker, surged 5.2% after the previous session restructuring announcement prompted broker upgrades. JPMorgan added Michelin to its focus list and lifted its price target, while Morgan Stanley updated its price target and maintained its overweight rating. Credit Suisse raised its recommendation from underperform to neutral. In corporate news in a relatively quiet session, shares in catering firm Compass Group gained 2.4% after it said that its trading in the first four months of 2007 has been encouraging and marginally ahead of expectations.

Decliners

Shares in Swedish financial services group Swedbank fell 3% despite reporting a better-than-expected increase in Q4 profits. Strong trading revenues drove operating profit 18 % higher in the quarter, but investors were more concerned by rising costs. BBVA, the Spanish bank, fell 4% after it announced the sale of its stake in utility group Iberdrola and plans to issue 196 million new shares to help fund the $9.6 billion acquisition of Texas-based bank Compass Bancshares.

Oil and gold

Crude oil prices slipped Friday on forecasts for warmer weather in the U.S. Northeast, the largest heating oil market in the world. Light, sweet crude for March delivery dropped 5 cents to $57.94 a barrel on the New York Mercantile Exchange. Gold bullion opened Friday at a bid price of $666.30 a troy ounce, down from $667.30 late Thursday on the New York Mercantile Exchange.

Currencies

The dollar was mixed against other major currencies in European trading Friday morning. The euro traded at $1.3122, down from $1.3142 late Thursday. The British pound traded at $1.9483, down from $1.9511. The dollar traded at 119.36 Japanese yen, up from 119.18.