European Stock-Index Futures Fall; Societe Generale May Decline

By Adam Haigh

Aug. 19 (Bloomberg) -- European stock-index futures dropped, following declines in Asia and the U.S., on renewed concern financial firms will post more losses as the credit- market turmoil deepens.

Barclays Plc and Societe Generale SA may follow their U.S.- traded securities lower after JPMorgan Chase & Co. said Lehman Brothers Holdings Inc. may write down about $4 billion in credit-related investments this quarter as the mortgage market deteriorates. William Hill Plc and Ladbrokes Plc may fall as analysts at JPMorgan recommended selling shares of the gaming companies on concern the economic slowdown will cut earnings.

Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, lost 41, or 1.2 percent, to 3,334 at 7:40 a.m. in London. The U.K.'s FTSE 100 Index is set to open 40 points lower, according to CMC Markets, a London-based spread- betting firm.

``Fear breeds fear,'' Howard Wheeldon, senior strategist at BGC Partners LP in London, said in a Bloomberg Television interview. ``We are going to get more bad news. Corporate profits are going to be in further decline.''

U.S. stocks dropped the most in more than a week yesterday, led by banking and real-estate companies, as growing speculation the government will bail out Fannie Mae and Freddie Mac rattled the mortgage market. Asian shares slipped today.

``We are expecting large falls across Europe and it's going to be about the financial sector,'' said Matt Buckland, a trader at CMC Markets in London. ``There are general worries about the health of the U.S. financial sector.''

Higher Risk Aversion

Interest-rate derivatives are showing that investors are preparing for another round of turmoil in credit markets. The five-year interest rate swap spread has climbed above 104 basis points on concern the two largest U.S. mortgage finance companies may need to be propped up by the federal government.

The measure has risen above 100 basis points in the past year ahead of the unwinding of structured investment vehicles, the collapse of Bear Stearns Cos. and the seizure of IndyMac Bancorp Inc.

The Stoxx 600 has fallen 21 percent this year as losses at financial firms exceeded $500 billion, inflation accelerated and oil climbed to a record. Crude's more than 22 percent retreat from a record in July has helped the index claw back 7.7 percent from a three-year low reached on July 15.

German producer-price inflation accelerated to the fastest pace since October 1981 last month, bolstering the European Central Bank's case to keep interest rates at a seven-year high even as the economy cools. The Federal Statistics Office said prices for goods from newsprint to plastics increased 8.9 percent from a year earlier after rising 6.7 percent in June.

Barclays, SocGen

A report today may show German investor confidence held near a record low in August. The euro declined against the dollar, falling to $1.4640 from $1.4694 yesterday.

American depositary receipts of Barclays, the U.K.'s third largest bank, lost 0.9 percent from the close of trading in London yesterday. ADRs of Societe Generale, France's second- largest bank, slid 3.5 percent following the close.

Lehman will probably post losses in the third quarter following the deterioration in the mortgage market, New York- based analysts Kenneth Worthington and Funda Akarsu wrote in a report to investors dated yesterday.

The analysts lowered their per-share estimate for the third quarter to a loss of $3.30 from a profit of 35 cents previously. Lehman will likely keep the Neuberger Berman LLC asset- management unit, the analysts added.

William Hill

William Hill, the U.K. operator of more than 2,250 betting shops, may slide after JPMorgan downgraded the shares to ``underweight'' from ``overweight.'' Ladbrokes, a rival firm, was lowered to ``underweight'' from ``neutral.''

``We are cutting forecasts across our universe to reflect a recession scenario in 2009,'' London-based analyst James Ainley wrote in a note to clients today.

Ciba Specialty Chemicals AG, the world's biggest maker of colors for plastics, may fall after saying it suffered a loss in the second quarter because of raw-material prices, reorganization costs and a charge for goodwill impairment.

Xstrata Plc, the world's fourth-largest nickel refiner, may drop after suspending its Falcondo ferronickel operations in the Dominican Republic following a slump in metal prices and a surge in costs.

Schindler Holding AG may retreat. The world's second- biggest elevator and escalator maker posted second-quarter net income of 147 million francs ($134 million), missing the 149 million francs forecasts by analysts surveyed by Bloomberg.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net