MW: Europe stocks drop on fears of more ‘bail-ins’
By Sara Sjolin, MarketWatch
LONDON (MarketWatch) — Italian and Spanish banks closed sharply lower on Monday, after a bailout agreement for Cyprus, including a levy on large bank deposits, was said to be the new template for solving future euro-zone banking crises.
The Stoxx Europe 600 index XX:SXXP -0.27% dropped 0.3% to close at 293.25, reversing after trading as high as 297.03 earlier in the day.
Italy’s FTSE MIB index XX:FTSEMIB -2.50% sank 2.5% to 15,644.36, with shares of UniCredit SpA IT:UCG -5.81% off 5.8% and Intesa Sanpaolo SpA IT:ISP -6.21% 6.2% lower.
In Spain the IBEX 35 index XX:IBEX -2.27% slumped 2.3% to 8,140.60, with Banco Santander SA ES:SAN -3.24% SAN -5.33% down 3.2%.
The indexes, along with the broader European markets, had opened in positive territory, but was sent lower in the afternoon. Jeroen Dijsselbloem, the chairman of the Eurogroup of euro-zone finance ministers, said according to Reuters that the rescue program for Cyprus reached early Monday morning served as a template for addressing future banking problems in the euro zone.
“If the bank can’t do it, then we’ll talk to shareholders and the bondholders, we’ll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders,” he said, according to the report. See: Cyprus deal will dent euro, eventually—Citi’s Englander
As part of the 10 billion euros ($13 billion) bailout deal, Cyprus agreed to restructure the two largest Cypriot banks, with depositors with more than €100,000, the cutoff for uninsured deposits, to face losses.
“There was a sigh of relief this morning following the Cyprus deal, but now there has been a lot of criticism leveled at this deal. It highlights many of the old flaws in the euro zone and it doesn’t bode well for future resolutions,” said Peter Dixon, strategist at Commerzbank in London.
“They had to tap into deposits, which is not a good thing,” he added.
But even as investors were spooked by the prospect of bail-in solutions spreading to other ailing banking sectors, European equity markets still had the scope to move a little higher, Dixon said.
“If we got investors or corporations sitting on big piles of cash in the peripheral countries and they have seen what happened in Cyprus, the sensitive strategy would be to not hold cash and move them somewhere else like the equity markets,” he said. “Other asset classes look awful and you don’t get anything on fixed income.”
The Cyprus Stock Exchange was closed for trading all of last week, but said it would reopen Tuesday. Monday is a public holiday in Cyprus. See: Cyprus still at euro-zone exit risk: Moody’s
Italian auction
Earlier in the day, markets moved off intraday highs after the Italian government sold a total of €3.825 billion in public debt, slightly below the maximum targeted €4 billion and with higher borrowing costs compared to previous auctions.
In the secondary market, the yield on 10-year Italian government bonds IT:10YR_ITA +2.07% rose 8 basis points to 4.59%, according to electronic trading platform Tradeweb.
Elsewhere, economic advisers to the German government reportedly slashed their growth forecasts for 2013 to 0.3% from 0.8% expected previously.
The DAX 30 index DX:DAX -0.51% shaved off 0.5% to 7,870.90, with shares of Deutsche Bank AG DE:DBK -2.87% DB -4.63% 3.2% lower and Commerzbank AG DE:CBK -2.27% off 1.7%.
Shares of Bayer AG DE:BAYN +0.86% rose 1% in Frankfurt, as Japan’s Ministry of Health, Labor and Welfare approved the drug maker’s Stivarga tablets for treatment of advanced colorectal cancer.
France’s CAC 40 index FR:PX1 -1.12% closed 1.1% lower at 3,727.98, with banks posting the biggest losses. Société Générale SA FR:GLE -6.02% slid 6%, Credit Agricole SA FR:ACA -5.84% dropped 5.8% and BNP Paribas SA FR:BNP -3.04% erased 3%.
The U.K.’s FTSE 100 index UK:UKX -0.22% lost 0.2% to 6,378.38.
Vodafone Group PLC UK:VOD +2.04% VOD +1.41% rose 2%, as the Sunday Times reported the U.K. mobile operator is eying selling its shares in a venture with Verizon Communications Inc. VZ +0.06% , potentially leading to a $135 billion windfall for Vodafone and an exit from the U.S. market.
on Wall Street.
Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin.
