Hopes for recapitalization continue to boost lenders By Simon Kennedy, MarketWatch LONDON (MarketWatch) — European stocks rose Thursday, with banks again benefitting from hopes for a more coordinated crisis response from policy makers, while investors also keenly awaited the latest policy decisions from the European Central Bank and the Bank of England. The Stoxx Europe 600 index XX:SXXP +1.28% rose 1.6% to 227.81 in mid-morning trading, adding to a 3.1% gain in the previous session. Thursday’s gains followed another late rally on Wall Street, which benefitted from better-than-expected data on the services sector and employment, though the real test for markets on the jobs front will likely come Friday with the monthly nonfarm payrolls report for September. Among European stocks on the move, French banks Natixis SA FR:KN +9.83% and BNP Paribas SA FR:BNP +4.68% rose 9% and 6.6%, respectively, as the sector continued to gain on hopes for a coordinated injection of fresh capital. The French CAC 40 index FR:PX1 +1.61% rose 2% to 3,034.46. The Financial Times reported that European regulators are planning a new round of stress tests for banks, which — this time around — would factor in potential losses on sovereign debt. The last round of tests were performed less than three months ago, but did little to calm investors because the tests didn’t consider the possibility of big sovereign losses. Separately, European Commission President Jose Manuel Barroso said Thursday that the commission is pushing member states to carry out a coordinated recapitalization of the region’s banks, according to a Reuters report. Gary Jenkins, head of fixed-income research at Evolution Securities, said more capital for banks would generally be a good thing, but only if it comes alongside measures to combat the underlying problem — the sovereign debt crisis. “You cannot recapitalize banks to the extent they are able to withstand an Italian default, and committing vast amounts of public funds without a solution alongside it that brings investor confidence in sovereign markets may well be counter-productive in the long term,” Jenkins said in an email. If the money to recapitalize banks were also to come from the European bailout fund, then it would also reduce the amount available to support struggling sovereigns, he added. French-Belgian lender Dexia SA BE:DEXB -13.81% also remained in the news. Shares in the group dropped 7.9% after Belgian Prime Minister Yves Leterme reportedly said in a radio interview that the government will make sure Dexia survives, though it won’t rule out a partial or even total nationalization of the bank’s Belgian operations. The gains for European stocks came ahead of the latest policy meeting of the European Central Bank, with the likely outcome of the meeting among the most uncertain in a while. Economists mostly believe the ECB probably won’t yet decide to undo this year’s rate hikes, though it is widely expected to take steps to shore up banks by providing more liquidity to the sector. Read more on what's expected from the European Central Bank. The Bank of England is also expected to hold fire, but there is a chance it could resume pumping money into the economy through quantitative easing. In other sectors, car makers and mining stocks were also higher. Shares of PSA Peugeot Citroen SA FR:UG +4.53% rose 6.4% in Paris. BMW AG DE:BMW +2.05% climbed 2.8% in Frankfurt, helping lead the DAX 30 index DX:DAX +0.86% up 2.1% to 5,589.55. In London, Eurasian Natural Resources Corp. UK:ENRC +7.53% rose 7.3% to lead broad gains for mining stocks. The FTSE 100 index UK:UKX +1.34% added 1.6% to 5,183.00. Among fallers in Europe, shares of delivery group TNT Express NV NL:TNTE -0.49% dropped 6.2% after the group said a worsening product mix had hurt its third-quarter performance. Airlines were also in focus after Credit Suisse shook up its ratings in the sector. International Consolidated Airlines Group UK:IAG -0.06% and Deutsche Lufthansa AG DE:LHA -1.47% dropped 0.5% and 0.7%, respectively, after the broker downgraded them to neutral from outperform, citing an escalating risk to their earnings. Low-cost carrier easyJet PLC UK:EZJ +3.02% gained 2.1% after Credit Suisse upgraded it to outperform from neutral, saying it has the least downside risk, and as the carrier also reported an 8.5% increase in the number of passengers it carried in September. Simon Kennedy is the City correspondent for MarketWatch in London.

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