Major European markets fell around 2% lower on Monday – with banking stocks pressuring indices lower – as sovereign debt concerns in the continent were met with a credit outlook downgrade in the US, dampening sentiment.
The Cac in Paris fell 93 to 3,881, the FTSE MIB in Milan plummeted 637 to 21,185, the Ibex in Madrid dropped 214 to 10,345, while the Dax in Frankfurt finished down 151 at 7,027.
While the National Coalition Party in Finland won the election, and the left-leaning Social Democrat Party came in second, a shock surprise was the anti-EU True Finns party, which won 39 seats, up from the six it had previously. Many expect the move to pressure the Finnish parliament to the right, making it harder to approve any assistance it would give to struggling debt-laden nations, such as Portugal.
Also a cause for concern came from the US, with ratings agency Standard & Poor’s putting a ‘negative’ outlook on the country’s AAA credit rating, saying that there is a “significant risk” that negotiations between the Democrats and Republicans could result in no agreement on fiscal strategy until after the presidential elections. “If so, the first budget proposal that could include related measures would be Budget 2014 (for the fiscal year beginning October 1, 2013), and we believe a delay beyond that time is possible,” said S&P credit analyst Nikola Swann.
Meanwhile, Moody’s Investor Services cut the long-term bank deposit ratings of four Irish banks by two notches: Bank of Ireland (BoI), Allied Irish Bank (AIB), EBS Building Society (EBS) and Irish Life & Permanent (IL&P). ICS Building Society (ICS) saw its rating cut by one notch. This follows the move on Friday by the ratings agency to downgrade Ireland’s government bonds by two notches. BoI and ICS are now rated Ba1. AIB, EBS and IL&P have been given a Ba2 rating.
Credit Agricole, Societe Generale and BNP Paribas were lower in France. Banca Popolare di Milano andUniCredito Italiano were unwanted in Italy. In Spain, Bankinter, BBVA and Banco de Sabadell were in the red.Commerzbank and Deutsche Bank were among the worst performers in German.
A rare bright spot of the day was Swiss medical-device manufacturer Synthes saw shares surge after confirming that it is in takeover discussions with pharma and consumer packaged-goods giant Johnson & Johnson. The deal would be J&J’s largest and could value the group at around $20bn.
Deutsche Bank said that it is scrapped its sale of BHF Bank, ending discussions with Liechtenstein’s LGT Bank, and will now incorporate the business operations of the subsidiary. “Following discussions between the parties and with the competent supervisory authorities…Deutsche Bank and LGT decided not to pursue the transaction any further.” The German lender said it would continue with the” process of transforming and modernizing the business operations of BHF-Bank”.
Phillips, the Dutch electronics giant, said it is spinning off its TV arm into a joint venture with a Chinese TV manufacturer after it contributed to a 31% fall in profits in the first quarter. Net profit was €138m, but a loss of €87m was attributable to its TV division. Revenues grew 6% to €5.26bn. "Finding a solution for our television business was our top priority and we strongly believe that the intended 30%/70% joint venture with TPV that was announced today will enable a return to profitability for the television business, and an increased portfolio focus for Philips in health and wellbeing,” said chief executive Frans van Houten.
German steel maker ThyssenKrupp was firmly in the red after Goldman Sachs downgraded the group from a ‘buy’ to ‘neutral.
Oil titan Total was also under the weather in Paris after Credit Suisse cut its rating to ‘underperform’, from ‘neutral’.
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