European stocks, US index futures decline

European stocks dropped and US index futures fell on speculation banks may need more capital as losses increase, while lower oil and metals prices weighed on commodity producers. Shares in Asia rose.

BNP Paribas SA slipped for a third day, and Societe Generale SA sank the most in two months after Fitch Ratings said the banks may have to raise additional capital as their finances weaken. Lehman Brothers Holdings Inc, the fourth-biggest US securities firm, also retreated. Royal Dutch Shell Plc, Europe's largest oil producer, slumped to a three-week low, and mining company Anglo American Plc fell the most in a week.

Europe's Dow Jones Stoxx 600 Index declined 2 percent to 314.74, the most in two weeks, at 12:35 pm in London. The index has dropped 21 percent from a six-year high a year ago on concern higher inflation, record oil prices and credit-related losses approaching $400 billion will push the U.S. into recession.

"More bad news out of the world of financials" is hurting banks, said Andreas Nigg, a fund manager at Vontobel Asset Management in Zurich, which oversees $39 billion worldwide.

Futures on the Standard & Poor's 500 Index fell 0.5 percent before a report that may show growth in service industries slowed. The MSCI Asia Pacific Index increased 1 percent.

Interest-rate derivatives traders are betting banks' difficulties obtaining cash to fund holdings and shore up balance sheets will worsen.

"Nobody is betting that the worst of the credit crunch is over," said Jeremy Batstone-Carr, a London-based equity strategist at Charles Stanley Group Plc.

National indexes fell in all 18 western European markets. The United Kingdom's FTSE 100 sank 1.9 percent, and France's CAC 40 slipped 2.3 percent. Germany's DAX decreased 1.7 percent.

BNP, France's largest bank, fell 2 percent to 63.06 euros. Societe Generale lost 3.8 percent to 62.25 euros. Barclays Plc, the UK's third-largest bank, slipped 3.2 percent to 348.75 pence.

"Barclays and BNP and Societe Generale are clearly running on very thin capital ratios," Krishnan Ramadurai, a managing director at Fitch's financial institutions group, said at a conference in Tokyo yesterday. "A number of them need to come to the capital markets to raise capital."

Separately, JPMorgan Chase & Co said Societe Generale, Deutsche Bank AG and Credit Suisse Group were among European banks that may post an additional 9.5 billion euros of pretax writedowns this year.

Balance-sheet trouble

Lehman dropped 5.9 percent to $28.80. Speculation that Lehman will be forced to raise more capital pushed the stock down 9.5 percent on Tuesday, the most since March 17. Investors in the derivatives' markets are betting the shares may have further to fall.

Lehman was the most actively traded stock on US exchanges on Tuesday, with more than 136 million shares changing hands.

The company's balance-sheet troubles threaten the wider financial system unless the bank takes decisive action, the Wall Street Journal said.

Shell dropped 2.6 percent to 2,071 pence. BP Plc, Europe's second-biggest oil producer, slipped 3.2 percent to 585 pence.

Crude oil for July delivery was at $124.15 a barrel, down 16 cents, in after-hours electronic trading on the New York Mercantile Exchange.

Anglo American, the world's second-largest mining company, lost 2.1 percent to 3,387 pence. Copper, nickel and tin prices fell in London.

Persimmon Plc, the UK's second-largest homebuilder, retreated 2.4 percent to 445.25 pence. Bellway Plc, a UK homebuilder aimed at first-time buyers, lost 2.4 percent to 588.5 pence. Redrow Plc, this year's second-best performing UK homebuilding stock, slipped 5.6 percent to 210.75 pence.

UBS AG analysts Mark Stockdale and Gregor Kuglitsch downgraded the stocks to "sell" from "neutral".

"With volume likely to be down about 30 percent at least, sector profitability could be put under extreme pressure," the analysts wrote in a research note dated yesterday.

Barratt Developments Plc fell 7.7 percent to 144.5 pence. UBS reduced its share-price estimate on the UK's second- largest homebuilder by volume to 160 pence from 375 pence.

Agencies

(China Daily 06/05/2008 page16)