BLBG: Stocks in Europe, Asia, U.S. Futures Drop; Lloyds, HSBC Decline
tocks in Europe and Asia declined and U.S. index futures retreated after billionaire investor Warren Buffett said the economy has “fallen off a cliff” and the U.K. government took control of Lloyds Banking Group Plc.
Lloyds, Britain’s biggest mortgage lender, sank 7.9 percent, while the yield on the 10-year gilt fell to the lowest level since at least 1989. HSBC Holdings Plc plunged the most in at least 23 years in Hong Kong on concern that deepening loan losses at its U.S. unit will curb profits. Shinsei Bank Ltd., the Japanese lender partly owned by Christopher Flowers, slid 8.8 percent on plans to raise capital.
The MSCI World Index slipped 1.2 percent to 688.87 at 12:36 p.m. in London. A third government rescue for Citigroup Inc. and dividend cuts at companies from General Electric Co. to JPMorgan Chase & Co. have sent the gauge of 23 developed countries to a 25 percent drop this year, the worst start since the measure was created in 1970.
“Clearly we are in a deep recession and are still on the way down in most economies,” Michael Dicks, head of research and investment strategy at Barclays Wealth, which oversees about $203 billion, said on Bloomberg Television in London. “Nobody has sniffed the bottom to the point where they are willing to get their checkbook out” and buy equities, he said.
Futures on the Standard & Poor’s 500 Index fell 1.6 percent as Buffett said on CNBC that efforts to stimulate economic recovery may lead to inflation higher than during the 1970s.
The global economy may shrink for the first time since World War II and trade will likely decline the most in 80 years, the World Bank said in a report yesterday. The assessment was more pessimistic than an International Monetary Fund report in January predicting 0.5 percent global growth this year.
Lonmin Declines
Europe’s Dow Jones Stoxx 600 Index slumped 2.3 percent to 155.89, extending a 12-year low as Lonmin Plc dropped. The regional gauge has declined 21 percent in 2009 as companies from Danisco A/S to Bayer AG gave disappointing forecasts and credit market-related losses at financial firms worldwide climbed to almost $1.2 trillion.
The U.K.’s 10-year gilt yield dropped as much as 11 basis points to 2.95 percent, the lowest level since Bloomberg began tracking the data in 1989, while the pound slipped against the dollar and euro after the British government boosted its stake in Lloyds.
The MSCI Asia Pacific Index slid 1.9 percent. Japan’s Nikkei 225 Stock Average fell to the lowest level since October 1982 as the first current account deficit in 13 years fanned concern the economic slump is deepening. The yen fell against the dollar, euro and Swiss franc.
European Banks Drop
A gauge of banks posted the biggest drop among 19 groups in Europe’s Stoxx 600, retreating 4.6 percent. HSBC, the bank that’s raising 12.5 billion pounds ($17.5 billion) in a rights offer, lost 10 percent to 324.5 pence in London. The Hong Kong-listed shares plunged by a record 24 percent to HK$33, the lowest since May 1995.
HSBC Chairman Stephen Green last week said the 2003 purchase of Illinois-based Household International, which led to billions of dollars of losses as the U.S. housing market collapsed, was a mistake. CLSA Asia-Pacific Markets analyst Daniel Tabbush, who in December correctly predicted HSBC would have to raise money, cut his target price for the stock by 32 percent to HK$28, citing the threat of swelling bad debts.
Lloyds declined 7.9 percent to 38.7 pence. Britain’s biggest mortgage lender will cede control in exchange for tapping a guarantee program backing 260 billion pounds of assets. The government’s equity stake will rise to as much as 75 percent from 43 percent as a result of the transaction announced March 7.
‘Rotten Deal’
“It is a rotten deal,” said Roger Lawson, a spokesman for the U.K. Shareholders Association. “The original Lloyds shareholders are annoyed because their investment has effectively been destroyed.”
Barclays Plc slid 12 percent to 57.2 pence. The cost of protecting bonds sold by Barclays from default rose 15 basis points to 240, according to CMA Datavision prices for credit- default swaps.
Fortis limited the decline in the Stoxx 600’s bank index, rallying 27 percent to 1.22 euros. BNP Paribas SA, France’s biggest bank, agreed to acquire Fortis’s former banking units in Belgium and Luxembourg and take a stake in the insurance business after obtaining state guarantees on potential losses. BNP slipped 1.7 percent to 21.37 euros.
Shinsei, the worst-performing Japanese bank stock in the past 12 months, slumped 8.8 percent to 73 yen after saying it plans to sell preferred securities to rebuild a balance sheet ravaged by investment losses.
‘No New Money’
“Shinsei is managing to raise cash for now, which is good, but the fund-raising scheme gives rise to uncertainty,” said Shinichi Iimura, a senior banking analyst at Merrill Lynch & Co. in Tokyo. “There is no new money coming in.”
Lonmin slid 5.2 percent to 1,048 pence after JPMorgan cut its recommendation on the world’s third-biggest platinum producer to “underweight” from “neutral.”
“Lonmin has a great deal of work to do to restore its production costs to the levels seen four years ago,” analyst Steve Shepherd in Johannesburg wrote in a note. “This will require higher production volumes, which will take a couple of years to achieve.”
Schering-Plough Corp. jumped 16 percent to $20.41 in New York pre-market trading, after agreeing to be bought by rival drugmaker Merck & Co. for $41.1 billion in cash and stock. Merck fell 7.4 percent to $21.06.
European drugmakers jumped after the acquisition was announced, limiting losses on the Stoxx 600. AstraZeneca Plc gained 3.1 percent to 2,213 pence as the deal fueled speculation more mega-mergers will follow.
Graham, Buffett
The S&P 500, the benchmark index for U.S. equities, is still expensive by some measures even after the gauge dropped 56 percent in 17 months.
Benjamin Graham, the father of value investing and mentor of Buffett, measured equities against a decade of profits to smooth out distortions, a method that shows the S&P 500 trading at 13.2 times earnings, according to data compiled by Yale University Professor Robert Shiller. At the bottom of the three worst recessions since 1929, the average ratio fell below 10. To reach that level, the S&P 500 would sink another 27 percent.
