Reported dissension over ECB bond-buying program adds to woes
By Simon Kennedy, MarketWatch
LONDON (MarketWatch) — European markets fell heavily Friday as sovereign-debt worries once again slammed bank stocks, while car maker Porsche Automobil Holding SE tumbled following a delay in its planned merger with Volkswagen AG.
The Stoxx Europe 600 index XX:SXXP -2.55% dropped 2% to 225.96 in afternoon trading, following two days of gains for the pan-European index.
Wall Street ended lower Thursday after Federal Reserve Chairman Ben Bernanke said little about options to boost the U.S. economy, then extended its losses in early trading Friday as a $447 billion proposal from President Barack Obama to boost jobs did little to lift sentiment.
Bank stocks were under heavy selling pressure across Europe as finance ministers and central bankers gathered in Marseilles, France, for a Group of Seven meeting, where they will discuss faltering growth and the worsening debt crisis.
Shares of Societe General SA FR:GLE -10.58% slumped 10% in Paris, Commerzbank AG DE:CBK -7.63% dropped 7.5% in Frankfurt and Royal Bank of Scotland Group PLC UK:RBS -5.45% RBS -5.07% fell 8.5% in London.
The losses deepened after reports that Juergen Stark, a member of the European Central Bank’s governing council, will step down amid disagreements over the bank’s bond-buying program, which has been used to rein in yields on Spanish and Italian government debt.
The euro EURUSD -1.60% also extended a move lower after the report, trading down 1.2% at $1.3719.
“It is the banking sector that is weighing on sentiment today,” said Ben Critchley, sales trader at IG Index.
“This is reflecting caution over banking discussions at this weekend’s G-7 summit and also of course the release of the [U.K.’s] Vickers banking report due out on Monday,” Critchley said.
“Although there have been signs of some bottom fishing amongst bank shares in recent days, investors still remain very nervous of the sector and it seems unlikely this will be changing in the short-term,” he added.
The U.K. report due Monday will set forth recommendations for restructuring the banking sector. It is expected to propose that banks should “ring-fence” their retail operations from riskier investment-banking units.
Christine Lagarde, managing director of the International Monetary Fund, reportedly told a London audience Friday that policy makers “must act boldly and must act together” in the face of weakening global economies and troubled European sovereigns.
Strategists at Lloyds Bank Corporate Markets said in a note to clients that there had been some hopes for a coordinated policy response from the G-7. However, this now seems unlikely and money is likely to continue flowing out of risky assets into the safest fixed-income products, they said.
“In our minds, the coast remains far from clear,” Lloyds said.
