European Stocks Fall, Led by Banks, Airlines; Natixis Declines

By Adria Cimino

Aug. 27 (Bloomberg) -- European stocks fell for a second day this week on speculation bank losses will spread, while higher oil prices hurt airlines and carmakers.

Natixis SA slumped 4.9 percent after La Tribune said the French bank may sell shares at a discount in its 3.7 billion- euro ($5.4 billion) rights offer to replenish capital. Air France-KLM Group, Europe's biggest airline, declined 2.8 percent, and Daimler AG lost 1.9 percent as crude rose for a third day. Baloise Holding AG, Switzerland's third-biggest insurer, slipped 8.4 percent after profit missed analysts' estimates.

The Dow Jones Stoxx 600 Index slumped 0.3 percent to 281.98 at 2:55 p.m. in London. The index has fallen 23 percent this year as rising oil prices and more than $500 billion in credit- related losses by the world's largest banks threatened global economic growth, while accelerating inflation keeps central banks from cutting borrowing costs.

``It's too early to say we've seen stabilization'' in the banking industry, Lucy MacDonald, London-based chief investment officer of global equities at RCM Ltd., which has $100 billion under management, said in a Bloomberg Television interview. ``The effects are still rumbling through the system.''

European Central Bank council member Axel Weber said there's no scope for interest-rate cuts and the bank may even need to raise borrowing costs again once the economy emerges from its slump. The ECB raised its benchmark rate by a quarter point to 4.25 percent in July.

Taylor Wimpey

Taylor Wimpey Plc, the U.K.'s largest homebuilder, lost 4.3 percent after booking a first-half loss and saying it's still in talks with lenders to avoid breaching loan agreements.

Stocks pared some of their earlier losses after a report showed orders for U.S. durable goods unexpectedly increased in July. ABB Ltd., the world's largest builder of power networks, and BAE Systems Plc rallied after the figures were released.

``This gives a bit of air to the market,'' said Vafa Ahmadi, a fund manager at CPR Asset Management in Paris, which oversees the equivalent of $39 billion.

National benchmark indexes fell in 12 of the 18 western European markets. Germany's DAX sank 0.6 percent and France's CAC 40 lost 0.4 percent. The U.K.'s FTSE 100 added 0.4 percent.

Natixis sank 4.9 percent to 5.69 euros. The bank may offer new shares at a discount of between 30 percent and 40 percent in its rights offer, La Tribune reported, citing an unidentified person. The discount may even be higher to ensure the success of the offer, which may begin next week, the French daily said.

A Natixis spokeswoman declined to comment on the report.

UBS, Credit Suisse

UBS AG, the European bank hardest hit by the subprime contagion, sank 1.8 percent to 22.72 francs. Credit Suisse Group AG, the second-biggest Swiss bank, fell 1.5 percent to 48.56 francs.

The U.S. Federal Deposit Insurance Corp., which provides cover for the nation's bank deposits, may have to tap Treasury Department funds to carry it through an anticipated wave of bank failures, the Wall Street Journal reported, citing chairman Sheila Bair. Bair told the Journal the borrowing wouldn't be to cover any FDIC losses. Instead it would provide short-term liquidity to cover bank failures, the newspaper said.

The FDIC yesterday said its ``problem list'' of banks increased 30 percent in the second quarter to 117 banks, the highest in five years, as more commercial real-estate loans were overdue. Nine banks have failed this year, including California-based mortgage lender IndyMac Bancorp Inc., which the FDIC is running as a successor institution, IndyMac Federal Bank FSB.

Earnings Outlook

The Stoxx 600 is little changed in August even after rebounding 5.3 percent from its low of the year on July 15. All 18 of the main industry groups in the index have declined this year, led by a 34 percent tumble in bank shares.

Analysts estimate earnings among companies in the Stoxx 600 will decline 2 percent on average in 2008, according to weekly Bloomberg data. That compares with 11 percent growth forecast at the beginning of the year. Profits at financial companies will slump 26 percent, the data show.

``What's most on investors' minds is the level of earnings and growth,'' Salah Seddik, a fund manager at Richelieu Finance in Paris, which oversees $6.2 billion, said in a television interview. ``We could have disappointments in the months ahead.''

Air France

Air France lost 2.8 percent to 15.94 euros. Daimler, the world's second-biggest maker of luxury cars, fell 1.9 percent to 39.93 euros.

Crude oil rose in New York for a third day on forecasts Tropical Storm Gustav will strengthen as it enters the Gulf of Mexico, home to 26 percent of U.S. production. The contract for October delivery rose as much as 2.9 percent to $119.63 on the New York Mercantile Exchange. Oil gained 1 percent to $116.27 yesterday.

Baloise fell 8.4 percent to 92.3 francs. Profit dropped 42 percent in the first half to 268.2 million Swiss francs ($244.9 million) after income from its life business and investments fell. That missed analysts' estimates.

Taylor Wimpey tumbled 4.3 percent to 49.75 pence. The company booked a first-half loss of 1.42 billion pounds ($2.62 billion) after writing down the value of land.

Taylor Nelson Sofres Plc slipped 1.1 percent to 265.75 pence. GfK AG, Germany's largest market researcher, abandoned a bid for Taylor Nelson after failing to raise enough financing to counter a 1.1 billion-pound ($2 billion) hostile offer by WPP Plc.

Scor SE climbed 1.7 percent to 15.78 euros. France's biggest reinsurer said first-half net income rose 24 percent to 225 million euros, surpassing analysts' estimates, as it used deferred tax assets to offset costs related to the acquisition of Switzerland's Converium Holding AG.

Irish Life & Permanent Plc jumped 6.9 percent to 5.80 euros. Ireland's largest mortgage lender said it has no plans to raise capital from investors even after first-half profit fell 88 percent, hurt by higher borrowing costs and the country's deteriorating housing market.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.