BLBG: Stocks in Europe, Asia, U.S. Futures Drop; HSBC, Lloyds Fall
Stocks in Europe and Asia fell and U.S. index futures retreated as the World Bank said the global economy will shrink for the first time since World War II and speculation grew that losses at banks will increase.
HSBC Holdings Plc slumped 12 percent on concern that bad loans at its U.S. unit will curb profits. Lloyds Banking Group Plc sank 7.6 percent as Britain’s biggest mortgage lender ceded control to Prime Minister Gordon Brown’s government. Shinsei Bank Ltd., the Japanese lender partly owned by investor Christopher Flowers, slumped 8.8 percent on plans to raise capital.
The MSCI World Index slipped 1.1 percent to 689.77 at 9:21 a.m. in London. The deepening global recession, a third government rescue for Citigroup Inc. and dividend cuts at companies from General Electric Co. to JPMorgan Chase & Co. have sent the gauge of 23 developed countries to a 25 percent drop this year, the worst start since the measure was created in 1970.
“Clearly we are in a deep recession and are still on the way down in most economies,” Michael Dicks, head of research and investment strategy at Barclays Wealth, which oversees about $203 billion, said on Bloomberg Television in London. “Nobody has sniffed the bottom to the point where they are willing to get their checkbook out” and buy equities, he said.
World economic growth will be 5 percent below its potential and trade will likely decline by the most in 80 years, the World Bank said in a report yesterday. The assessment was more pessimistic than an International Monetary Fund report in January predicting 0.5 percent global growth this year.
Lonmin Declines
Europe’s Dow Jones Stoxx 600 Index slumped 2.2 percent to 156.01, extending a 12-year low as Lonmin Plc dropped. The regional gauge has declined 21 percent in 2009 as companies from Danisco A/S to Bayer AG gave disappointing forecasts and credit market related losses at financial firms worldwide climbed to almost $1.2 trillion.
Futures on the Standard & Poor’s 500 Index fell 2.4 percent. U.S. stocks posted the biggest weekly decline in three months last week after American International Group Inc. reported a $61.7 billion loss, Warren Buffett said the economy is in a “shambles” and concern increased that GE will be stripped of its top credit rating.
The MSCI Asia Pacific Index slid 1 percent today. Japan’s Nikkei 225 Stock Average fell to the lowest level since October 1982 as the country’s first current account deficit in 13 years fanned concern the economic slump is deepening and sent Honda Motor Co. lower.
European Banks Drop
A gauge of banks posted the biggest drop among 19 groups in Europe’s Stoxx 600, retreating 3.4 percent. HSBC, the bank that’s raising 12.5 billion pounds ($17.5 billion) in a rights offer, lost 12 percent to 319 pence in London.
HSBC Chairman Stephen Green last week said the 2003 purchase of Illinois-based Household International, which led to billions of dollars of losses as the U.S. housing market collapsed, was a mistake. CLSA Asia-Pacific Markets analyst Daniel Tabbush, who in December correctly predicted HSBC would have to raise money, cut his target price for the stock by 32 percent to HK$28, citing the threat of swelling bad debts.
Lloyds declined 7.6 percent to 38.8 pence. Britain’s biggest mortgage lender will cede control in exchange for tapping a guarantee program backing 260 billion pounds of assets. The government’s equity stake will rise to as much as 75 percent from 43 percent as a result of the transaction announced March 7.
“It is a rotten deal,” said Roger Lawson, a spokesman for the U.K. Shareholders Association. “The original Lloyds shareholders are annoyed because their investment has effectively been destroyed.”
Fortis, Swedbank Gain
Fortis limited the decline in the Stoxx 600’s bank index, rallying 18 percent to 1.14 euros. BNP Paribas SA, France’s biggest bank, agreed to acquire Fortis’s former banking units in Belgium and Luxembourg and take a stake in the insurance business after obtaining state guarantees on potential losses. BNP slipped 0.4 percent to 21.66 euros.
Swedbank AB soared 10 percent to 20.30 kronor. Sweden’s largest bank by branches reneged on its dividend payout for 2008 to preserve cash after Sweden’s savings bank foundation, the country’s biggest investor, had to cede part of its stake to a group of creditors.
Shinsei, the worst-performing Japanese bank stock in the past 12 months, slumped 8.8 percent to 73 yen after saying it plans to sell preferred securities to rebuild a balance sheet ravaged by investment losses.
‘No New Money’
“Shinsei is managing to raise cash for now, which is good, but the fund-raising scheme gives rise to uncertainty,” said Shinichi Iimura, a senior banking analyst at Merrill Lynch & Co. in Tokyo. “There is no new money coming in.”
Lonmin slid 4.2 percent to 1,060 pence after JPMorgan cut its recommendation on the world’s third-biggest platinum producer to “underweight” from “neutral.”
“Lonmin has a great deal of work to do to restore its production costs to the levels seen four years ago,” analyst Steve Shepherd in Johannesburg wrote in a note. “This will require higher production volumes, which will take a couple of years to achieve.”
The S&P 500 is still expensive by some measures even after U.S. dropped 56 percent in 17 months.
Benjamin Graham, the father of value investing and mentor of Buffett, measured equities against a decade of profits to smooth out distortions, a method that shows the S&P 500 trading at 13.2 times earnings, according to data compiled by Yale University Professor Robert Shiller. At the bottom of the three worst recessions since 1929, the average ratio fell below 10. To reach that level, the S&P 500 would sink another 27 percent.
