European Stocks Fall, Led by Banks on Loss Concerns; Ciba Drops

By Adam Haigh

Aug. 19 (Bloomberg) -- European stocks declined for a second day as concern deepened that financial firms will post more losses and reports signaled faster-than-forecast inflation.

Barclays Plc slipped 4.7 percent and Societe Generale SA slumped 3.5 percent 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. Ciba Holding AG tumbled 16 percent after posting a loss on a writedown and higher raw-material prices. Wienerberger AG led construction companies lower, sinking 4.8 percent, after cutting its profit outlook following the U.S. homebuilding slump.

The Dow Jones Stoxx 600 Index lost 1.9 percent to 281.57 at 2:55 p.m. in London, extending this year's decline to 23 percent as higher inflation and more than $500 billion in credit-related losses by banks worldwide threaten economic growth.

``The banking sector is still very, very difficult,'' said Hugh Yarrow, a fund manager at Rathbone Unit Trust Management, whose parent company Rathbone Brothers Plc has about $22.3 billion. Any worries about the value of their holdings and ``investors just start to panic,'' he said in a Bloomberg Television interview.

Producer prices climbed in the U.S. double the amount that economists forecast in July, reflecting a peak in oil prices that have since waned. A similar gauge of wholesale prices in Germany, Europe's largest economy, accelerated last month to the fastest pace since October 1981.

Breeding Fear

Interest-rate derivatives show investors are preparing for another round of turmoil in financial markets. The five-year interest rate swap spread has climbed above 104 basis points on concern Fannie Mae and Freddie Mac, the two largest U.S. mortgage finance companies, may need to be propped up by the 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.

``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.''

William Hill Plc and Ladbrokes Plc fell as analysts at JPMorgan recommended selling shares of the U.K. gaming companies on concern the economic slowdown will cut earnings. Schindler Holding AG slid after the world's second-biggest elevator and escalator maker posted profit that missed analysts' estimates.

National benchmark indexes declined in all the 18 western European markets. The U.K. FTSE 100 lost 1.8 percent, as did France's CAC 40. Germany's DAX Index slid 1.7 percent.

Barclays, SocGen

Barclays, the U.K.'s third-biggest bank, lost 4.6 percent to 326.5 pence. Societe Generale, France's second-largest bank, slid 3.5 percent to 62.14 euros.

Lehman will probably post losses in the third quarter following the deterioration in the mortgage market, New York- based JPMorgan 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.

Ciba sank 16 percent to 26.9 francs after reporting a loss in the second quarter. The world's biggest maker of colors for plastics had a net loss of 606 million francs ($552 million), compared with a 27 million-franc profit a year earlier, after taking a 595 million-franc charge to adjust goodwill at its water and paper-treatment unit.

Wienerberger

Wienerberger dropped 4.8 percent to 16.95 euros after profit sank 39 percent in the second quarter. Sales slipped 4 percent to 690 million euros, missing the 705 million-euro estimate from a survey of analysts by Bloomberg.

Operating profit will decline by 15 percent in 2008, compared with an earlier prediction of a 10 percent drop, the company said.

Cie. de Saint-Gobain SA, Europe's biggest supplier of building materials, lost 4.1 percent to 41.46 euros. Lafarge SA, the world's largest cement producer, slid 2.1 percent to 81.42 euros.

William Hill, the U.K. operator of more than 2,250 betting shops, sank 4.1 percent to 274.25 pence after JPMorgan downgraded the shares to ``underweight'' from ``overweight.'' Ladbrokes, a rival firm, was lowered to ``underweight'' from ``neutral.'' Its shares dropped 5.2 percent to 225 pence.

``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.

Schindler

Schindler retreated 2.2 percent to 72.6 francs after posting second-quarter net income of 147 million francs ($134 million), missing the 149 million-franc forecast by analysts surveyed by Bloomberg.

Solarworld AG climbed to the highest in more than two months on renewed speculation General Electric Co. may make an offer for Germany's third-largest solar power company.

The stock is ``up again on unlikely rumors that GE will bid 37.50 euros per share for Solarworld,'' said Thomas Nagel, a trader at Equinet AG in Frankfurt.

``There is no offer nor are there talks with GE,'' Solarworld's Chief Executive Officer Frank Asbeck, 49, said in a telephone interview today. The shares rose 2 percent to 32.45 euros.

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