Gathering recession fears knocked bank stocks in Europe as falling sales from Germany’s Volkswagen added to the economic gloom.
The FTSE Eurofirst 300 fell 2.6 per cent to 837.41 points, while in Frankfurt the Xetra Dax dropped 3.3 per cent to 4,557.27 points, led lower by VW, which said vehicle sales had fallen 5.1 per cent in October.
Deutsche Bank said in a note that the economic slowdown in the last quarter would look like “a walk in the park” compared with what lies ahead.
“Elements of discretionary spending, such as car sales and capital expenditure orders, were rolling over quickly in the third quarter, even before the Lehman surprise,” Deutsche analysts said, adding that by the end of the year output would slow even more sharply.
Dexia fell 6.8 per cent to €4.1 as Citibank warned that the Franco-Belgian bank was still facing structural problems.
Citi said that Dexia shareholders had paid a heavy price to exit its US bond insurance unit, FSA.
Dexia took a €1.5bn loss when the unit was sold off, but retained FSA’s most toxic exposures, and shareholders still face the risk of further dilutive capital issuance to French and Belgian governments.
Citibank itself cast a dark shadow across the whole of the European banking sector after it said it would cut 52,000 jobs, highlighting the scale of the retrenchment in the banking sector.
Anglo Irish Bank lost 12 per cent to €1.14, in France BNP Paribas fell 8.1 per cent to €43.02, Spain’s BBVA dropped 5.1 per cent to €7.95 and Switzerland’s UBS shed 5.2 per cent to SFr13.75.
Deutsche Bank fell 2.7 per cent to €23.83 although the bank’s chief executive said that Germany’s largest bank would not need money from the state to survive the financial crisis.
Meanwhile, Heidelberg Cement was the biggest faller in Europe, diving 21.9 per cent to €39.90 after news this weekend that the company’s majority stakeholders, the Merckle family, could sell their stake to offset losses made on VW stock.
Shares in German carmakers BMW rose 0.9 per cent to €21.58 on talk of hopes of state aid for the sector, while rival Daimler reversed early gains, slipping 2.3 per cent to €22.69.
In France Renault slipped 4 per cent to €17.95 while Peugeot lost 2 per cent to €15.11.
The world’s largest mobile handset maker Nokia also failed to hold onto its early advance after Merrill Lynch upgraded its recommendation on the shares from “neutral” to “buy”, now that investors had digested news that 2009 production would be lower than 2008. Its shares edged up 0.1 per cent to €9.96.
“Looking six months out, we see the company re-accelerating its handset release process after significant problems in 2008,” the brokerage said.
Although the mobile sector would remain grim in the near future, Nokia would be able to expand its market share in the last quarter of 2009, just as it did in the 2001 downturn, Merrill said.
Meanwhile, shares in German solar-cell maker Q-Cells climbed 1.6 per cent to €24.28, in spite of Credit Suisse cutting its price target from €66 to €44.
“Although we believe risk to end demand and pricing pressure will be a challenge for the solar industry in 2009 we remain positive on Q-Cells,” analyst Adrien Bommelaer said.
“We believe the company is taking all the right steps to reduce production costs.
“Although Q-Cells will see margins suffer owing to a tougher pricing environment, we see value in the shares,” he added.
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