European Bank Worries, Renault Downgrade

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

European market indexes closed lower despite an attempt by financial stocks to rally failed to lift indexes and sector stocks. Banks and auto led the decliners in Germany and France. Renault debt rating was lowered. France will invest capital to support the merger of two largest savings banks.

[R]1:00PM New York, 6:00 Frankfurt – European stocks trim early gains to close lower. Renault credit rating was lowered.[/R]

European stocks trimmed their earlier gains and pushed main indexes into the red after strong intra-day gains by financial stocks. The financial stocks in the U.S. rallied on the hopes that the U.S. may inject more capital in the troubled banking sector and the hopes that the European goverments will soon release additional measures to bolster the system helped banks in trading. However, financials closed lower.

Banks and automakers led the decliners in Germany and France.

The rating agency Moody’s downgraded the credit rating of Renault SA citing poor performance and unsound cash flow. The long-term rating of France’s second largest automaker was lowered from Ba1 to Baa2.

Market sentiment

In Frankfurt trading the DAX 30 Index slid from early gains and closed lost 2% lower or 78.21 to 3,936.45.

Of the DAX index shares, only 4 gain and 26 were down.

Fresenius Medica led advancers with a gain of 1.3%, followed by gains in Bayer AG of 0.6%, in SAP AG of 0.5% and Merck KGAA of 0.1%.

Infineon Tech led decliners with a loss of 10.7%, followed by losses in Daimler AG of 5.6%, in Bayer Motoren WK of 5.5%, in Salzigitter AG of 5.1% and Henkel AG-PFD of 4.6%.

In Paris the CAC 40 lost 0.8% to 2.727.87.

Societe Generale led advancers with a gain of 2.2%, followed by gains in PPR of 1.6%, in EDF of 1.2%, in Sanofi-Aventis of 1.1% and Total of 0.8%.

Dexia led decliners with a loss of 11.9%, followed by losses in Renault of 10.8%, in Alcatel-Lucent of 7.1%, in Arcelormittal of 5.5 and Air France-KLM of 4.9%.

Renault slumped after Moody’s Investor’s Service downgraded its credit rating on the basis of poor performance and unsound cash flow. The long-term rating of France’s second largest automaker slid from Ba1 from Baa2.

France to Inject Capital in Bank Merger

France President Nicholas Sarkozy’s government committed further financial support to Banque Populaire and Groupe Caisse d’Epargne, as the two largest savings banks in France prepare to merger into the country’s second largest retail bank after Credit Agricole.

The merger will be headed by former banker, François Pérol, who is currently Sarkozy’s economics advisor.

The two banks have agreed to Pérol’s appointment, paving the way for a second financial injection as the government is tipped to take a significant stake in the merged retail bank. Already the government has sunk €2.5bn into Caisse d’Epargne and Banque Populaire in preference shares.

G-20 Calls for Tighter Regulations

German Chancellor Angela Merkel told reporters at the end of a G-20 meeting in Berlin at the weekend that a tighter regulatory and institutional framework for banks, hedge funds and credit rating agencies will be considered to bring stability into global financial markets.

The European leaders have been slow in regulating European banks that engaged in reckless lending and speculation in the U.S. residential mortgage securities. Top banks in UK, Germany, Switzerland, France and the Netherlands have significant exposure to the financial crisis originating in the U.S. and have suffered nearly $400 billion of the $1 trillion in losses announced so far.

Europe Markets Review

In London FTSE 100 Index closed lower 38.33 or 0.99% to 3,850.73, in Paris CAC 40 Index decreased 22.68 or 0.82% to close at 2,727.87 and in Frankfurt DAX index lower 78.21 or 1.95% to close at 3,936.45. In Zurich trading SMI decreased 54.09 or 1.11% to close at 4,797.12.