Europe’s banks fall prey to the bears

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Storm clouds over troubled US financial stocks blew over the Atlantic on Thursday, pummelling European banks and driving the region’s equities sharply lower.

Banks jostled for space among the day’s biggest losers on the FTSE Eurofirst 300 which was down 1.6 per cent to 1,570.39 as worries grew that further writedowns on their credit market holdings were in the pipeline.

Swiss bank Credit Suisse dropped 3.7 per cent to SFr75 after posting a 31 per cent fall in third-quarter net profit, after writedowns in leveraged loan commitments and collateralised debt obligations (CDOs).

UBS dropped 4.4 per cent to SFr59.2 after Merrill Lynch downgraded the Swiss wealth manager to “neutral” from “buy”.

ABX, the mortgage-linked derivatives index, has been pushed to new lows by the ongoing US housing crisis in a price swing that could force UBS to write down a further $8bn of losses on its Mezzanine CDOs, Merrill said.

“In the light of further subprime disclosure, it seems unlikely that investors will move past potential subprime losses in the near future,” the brokerage added.

Worries about subprime contagion intensified after Credit Suisse downgraded US financial services group Citigroup from “outperform” to “neutral”.

CIBC World Markets also cut its rating on Citi on fears of massive writedowns.

Investor confidence in smaller banks across Europe took a battering after Morgan Stanley downgraded large US banks from “attractive” to “cautious” and said there would be contagion from subprime housing to prime housing and then on to car and credit card loans.

French bank Natixis plunged 7.1 per cent to €14.22, while Anglo Irish Bank tumbled 5.3 per cent to €10.99, Bank of Ireland slid 4.3 per cent to €12.19 and Belgium’s Dexia dived 7.2 per cent to €20.54 after its US subsidiary FSA reported heavy losses on the back of credit default swaps.

Elsewhere in the sector, France’s BNP Paribas fell 4.1 per cent to €73, Italy’s UniCredit was down 4.8 per cent at €5.61 and Deutsche Postbank was trimmed by 3.7 per cent to €48.59. Deutsche Bank lost 3.5 per cent to €88.87 and Société Générale dropped 2.7 per cent to €112.71.

Defying the bears, Austrian bank Raiffeisen International, rose 2 per cent to €114.1 on hopes it could cash in on the financial market turmoil, dealers said.

Raiffeisen’s chief executive earlier noted that aftershocks of this summer’s credit crisis would lower the price of acquisition targets in eastern and central European banking markets, where Raiffeisen has expanded aggressively.

Also battling the gloom, Deutsche Borse rose 5.2 per cent to €114.56 after the German stock market operator’s third-quarter inc­ome rose 36 per cent to a record, as financial market turbulence generated incr­eased stock and derivatives trading.

Switzerland’s largest biotechnology group Actelion slumped 2.7 per cent to SFr56, when takeover rum­ours failed to materialise.

As reported in the Financial Times, the stock was also hit after US rival United Therapeutics released a favourable trial for a pulmonary hypertension drug which could go head-to-head with Actelion’s product Ventavis. United Therapeutics rose 33 per cent to $91.

Meanwhile, Alcatel-Lucent dropped 5.4 per cent to €6.34 after Bank of America slashed its rating from “buy” to “neutral”, citing poor execution of the company’s restructuring strategy.

The Paris-based group has said it would cut a further 4,000 jobs by 2009.

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