HSBC Holdings, Credit Suisse and Lloyds among the decliners
European shares fell to fresh 12-year lows Monday, as sharp losses for banks offset a deal rebound for drugmakers tied to speculation over prospective deals.
The pan-European Dow Jones Stoxx 600 index declined 2.5% to 155.59. It hasn't traded at these levels since the end of 1996.
On a regional level, the French CAC-40 index sank 1.8% to 2,489.31, the U.K.'s FTSE 100 index fell 1.1% to 3,491.98 and the German DAX 30 index lost 1% to 3,629.88.
Overnight in Asia, Japanese shares gave up early gains to end lower, with the benchmark Nikkei 225 Average marking its lowest closing level in at least 24 years. Over the weekend, the World Bank said that the global economy is likely to shrink this year for the first time since World War II. "The market collapse is fully consistent with the macro environment in which we currently find ourselves," noted Peter Dixon, equity strategist at Commerzbank.
European equity strategists at Morgan Stanley said that they are looking for a trough in earnings, U.S. housing and bank deleveraging for clues on when to turn structurally bullish but don't expect an imminent change.
"Those troughs are not in sight, in our view," they said.
Banks drop
In the banking sector, shares of Swiss lender Credit Suisse fell 7%, shares of banking giant HSBC Holdings fell 6.7% and Barclays shares dropped 11.1%.
Lenders continue to turn to governments for support. Over the weekend, Lloyds Banking Group down 7.6% on Monday, said that the U.K. government will insure up to 260 billion pounds of assets in return for increasing its stake up to 77% from a current 43%. Over on the Continent, BNP Paribas shares rose 2.1%. The French lender signed a deal to buy the majority of Fortis Bank NV from the Belgian government, along with an interest in Fortis' insurance business, in exchange for official guarantees against losses. Fortis shares jumped 24%. "Markets have become more pessimistic about the banking sector in particular. I think that people are afraid of large-scale nationalizations. That's been one of the main drivers of the market," noted Stephen Dowds, head of international equities at the Northern Trust.
Drugmakers up
Still, Europe-listed drugmakers rallied on Monday after U.S. drugmaker Merck said that it would buy rival Schering-Plough for $41.1 billion.
"It's not an all stock deal and it's an indication that there's value somewhere in the market," noted Dowds. Shares of AstraZeneca Sanofi-Aventis also named Jerome Contamine as its new finance chief with effect from March 16. Jerome Contamine was previously chief financial officer of Veolia Environment.
