ECB on Hold; Swiss Re, Zurich Financial Tumble

123jump.com Staff
05 Feb, 2009
New York City

European markets closed lower on weak profits from banks and weaker economic conditions. The European Central Bank left its key lending rate unchanged at 2% and the Bank of England lowered its rate by 50 basis points to 1%. Deutsche Bank, Swiss Re, Zurich Financial and Unilever plunged.

[R]1:00PM New York, 6:00 Frankfurt –European Central Bank leaves rate unchanged, Euro falls for the third day.[/R]

European markets closed lower on weak profits from banks and weaker economic conditions. The European Central Bank left its key lending rate unchanged at 2% and the Bank of England lowered its rate by 50 basis points to 1%. The ECB hinted that it may lower rates at its next meeting but the committee is not likely to drop rates down to zero.

The ECB also said the recession in the Euro zone is spreading. The news hurt the euro and the currency dropped against the dollar and British pound.

Separately, the Bank of England estimated that the inflation may drop below the target of 2%.

Stock Movers

Banks and insurance companies led the decliners in trading in Switzerland, Germany and France.

Swiss Re dropped 28% to Sfr 21.70 after it was forced to raise capital of Sfr 3 billion or $2.6 billion from Berkshire Hathaway Inc. Zurich Financial Services AG dropped 4% to Sfr 207.30 after the fourth quarter profit dropped 87%.

Unilever plunged 6% to 16.15 euros after the company declined to offer annual and quarterly earnings guidance. The company is caught between rising commodities prices and tight retail environment.

Danske Bank A/S fell 8% to Dk 53.75 reported quarterly loss on losses of 552 million euros at its Irish unit National Irish Bank.

Market sentiment

In Frankfurt the DAX Index rose 0.4 % or 17.7 to 4,510.49. Of the 30 index shares, 23 gained and 7 lost.

Infineon Tech, Germany’s chipmaker, led the gainers in DAX Index with a gain of 9.9% followed by gains in chemicals giant K+S of 7.8%, in Muenchener Rue of 5.7%, in Deutsche Boerse of 5%, and in Salzgitter of 4.8%.

Beiersdorf led decliners in the DAX Index with a loss of 3.6% followed by drops in Metro of 2.6%, in Deutsche Bank of 1.3%, in Linde of 1.2%, and in Volkswagen of 0.9%.

In Paris the CAC 40 fell 0.09% or 2.7 to 3,066.29.

Loses in Deutche Bank and Societe Generale dragged the market index down as concern increased about the outlook for earnings. Societe Generale fell 5.7%, followed by loses in Pernod Richard of 4.9%, in Alcatel-Lucent of 4.5%, in Peugeot of 3.7% and in Credit Agricol of 3.4%.

Deutsche Bank Net Loss

Deutsche Bank reported a net loss of 3.9 billion euros for the year 2008 and a fourth-quarter loss before tax of 6.2 billion euros.

Josef Ackermann, the chairman of the bank’s management board said, “Looking forward, we see continuing very difficult conditions for the global economy, posing significant challenges for our clients and for our industry.”

The largest German bank by market capitalization said fourth quarter revenues was €885 million compared to €7.3 billion a year earlier. Net loss in the quarter was €4.79 billion compared to net profit of €953 million a year earlier.

For the full year 2008, Net loss in the quarter was €3.84 billion compared to net profit of €6.47 billion a year earlier.

Banco Santander Net Drops 62%

Banco Santander SA, a financial group that offers a range of financial products reported fourth quarter net income in the quarter fell 62% to €1.94 billion or compared to net income of €2.5 billion a year ago.

Net interest income for the fiscal year 2008 rose 21.6% to €18.6 billion from €15.3 billion a year ago. Net income for the year fell 2% to €8.9 billion compared to net loss of €9.06 billion a year ago.

Banco Santander SA ((STD)) in the last one year traded as high as €22.27 in May 2008 and as low as €6.01 in November 2008. Based on the yesterday's closing price of €7.72 the company has market cap of €48.28 billion.

US unemployment data

The US Labour Department reported that employers downsized operations and reduced working hours to head off recession. According to the report, between October and December employers laid off 1.5 million workers and significantly slashed working hours. However, productivity improved.

The number of people signing up for unemployment insurance benefits for the first time also rose and surpassed projections, reaching a new peak since October 1982. The figure surged by 35,000 to 626,000 in the week ended January 31.

Europe Markets Review

In London FTSE 100 Index closed higher 0.33 or 0.01% to 4,228.93, in Paris CAC 40 Index decreased 2.70 or 0.09% to close at 3,066.29 and in Frankfurt DAX index higher 17.70 or 0.39% to close at 4,510.49. In Zurich trading SMI decreased 118.61 or 2.27% to close at 5,106.85.