German chancellor’s CDU party crushed in state elections
By Barbara Kollmeyer, MarketWatch
MADRID (MarketWatch) — European stock losses deepened on Monday afternoon, as Deutsche Bank AG and several other banks tumbled after being named in a U.S. mortgage-related lawsuit, while a defeat for the party of Germany’s chancellor in regional elections weighed on already downbeat sentiment.
Sellers picked up the pace in the afternoon, with the Stoxx Europe 600 index XX:SXXP -4.20% slumping 4.1% to 223.45.
It tumbled 2.4% on Friday after data showed no growth in U.S. payrolls in August, a result well short of expectations. U.S. markets are closed Monday for the Labor Day holiday.
The biggest decliner for the Stoxx 600 was Clariant AG CH:CLN -16.99% . Shares sank 16% after the Swiss specialty-chemical group cut its full-year sales and profit outlook owing to a strong Swiss franc and the global economic slowdown.
Other chemical stocks followed Clariant lower, such as BASF DE:BAS -6.50% , down 5.2%, and Bayer AG DE:BAYN -4.92% off 3.6% in Frankfurt.
Meanwhile, dramatic losses were seen for European bank shares.
“The banking sector continues to remain under pressure today as it underperforms across Europe,” said Manoj Ladwa, senior trader at ETX Capital, in emailed comments. “The chances of a near-term recovery remain slim as euro-zone debt concerns, structural reform and a lawsuit for allegedly misselling mortgage debt all weigh heavy on the sector.”
Shares of Royal Bank of Scotland Group PLC RBS -4.69% UK:RBS -11.84% sank 11% after the bank was named last week in a lawsuit by the Federal Housing Finance Agency. The agency alleges that major U.S. and European banks misrepresented the quality of mortgages they sold during the housing bubble, and it is suing for billions of dollars in losses. Read U.S. sues big banks over mortgage losses
Also named in the lawsuit were Deutsche Bank AG DB -6.04% DE:DBK -8.59% , down nearly 10%, Societe Generale SA FR:GLE -7.85% SCGLY -6.02% , off close to 10%, Barclays PLC BCS -7.67% UK:BARC -7.23% , down 6.6%, and HSBC Holdings PLC UK:HSBA -3.79% HBC -1.44% , off 3.5%.
Losses ramped up throughout the day for the German DAX 30 index DX:DAX -5.81% , which sank 5.1% to 5,254.98. Along with Deutsche Bank, Commerzbank AG DE:CBK -6.64% slid 5.6%. Heavyweight industrial conglomerate Siemens AG SI -3.23% DE:SIE -6.03% slid nearly 5% and losses for chemical companies such as BASF also weighed.
The French CAC 40 index FR:PX1 -5.30% was among the hardest-hit; it dropped 4.7% to 2,999.04. In addition to Societe Generale, shares of BNP Paribas SA FR:BNP -6.31% slumped 7.5% and Credit Agricole SA FR:ACA -5.22% slid 6.3%.
Alos weighing on the CAC 40 was Schneider Electric SA FR:SU -6.43% , whose shares fell 7.7% after HSBC downgraded the firm to neutral from overweight, along with those of Alstom SA FR:ALO -5.55% , down 5.8%. Away from the main index, shares of Legrand SA FR:LR -3.94% fell 4.5% after also being cut to neutral from overweight.
In a note, HSBC said it is reducing 2011 earnings forecasts by 14% on average for the European capital-goods sector, and cutting target prices 21% on average, partly due to higher risk premium currently on cyclical stocks.
The Spanish IBEX 35 index XX:IBEX -4.72% dropped 4%, as Banco Santander SA ES:SAN -6.53% STD -5.19% stumbled 6%.
German election results weigh
The bad news seemed to keep coming after negotiations between Greece and international lenders stalled on Friday amid disagreement over the nation’s progress on reducing its budget deficit. The Athens General Index GR:GD -2.88% fell 2.6%, led by an 11% drop for EFG Eurobank Ergasias SA.
In Germany, Chancellor Angela Merkel’s Christian Democratic Union was trounced in a regional election on Sunday. Some analysts believe the results are a sign of voters venting their frustration at how the government has handled the European debt crisis. Read No homecoming for Germany’s Merkel
“It is rather inconvenient timing for more problems to surface as the market is still digesting the weak U.S. jobs figure last Friday,” said Jordan Lambert, trader at Spreadex Ltd, in emailed comments.
Political and economic issues also weighed in Italy, where the government has been coming under increasing pressure to step up approval of its austerity package, which some say is being watered down.
At a conference on Saturday, European Central Bank President Jean-Claude Trichet said the country must implement austerity measures without delay, according to The Wall Street Journal.
Italy’s FTSE MIB index XX:FTSEMIB -5.61% sank 4.5%, with shares of Intesa Sanpaolo SpA IT:ISP -8.32% dropping 8.5%.
On the data front, the news wasn’t much better. Data out Monday showed private-sector activity across the euro zone grew at the slowest rate in two years in August, with the Markit composite purchasing managers index dropping to 50.7 from 51.1 in July.
Banks and resource stocks drove the FTSE 100 UK:UKX -3.38% down nearly 3% to 5,133.50. Shares of Royal Dutch Shell PLC RDS.A -1.35% , UK:RDSA -4.57% slid 3.8% and miner Rio Tinto PLC UK:RIO -5.17% RIO -2.05% slumped 4.8% on global growth concerns following weak U.S. nonfarm payroll data last week.
