European Stocks Fall on Bank Concerns; Hypo Real Estate Drops

By Sarah Jones and Sarah Thompson

Aug. 16 (Bloomberg) -- European stocks had the biggest weekly drop in a month after JPMorgan Chase & Co. reported a $1.5 billion loss on mortgage-backed assets, deepening concern that banks will post more writedowns.

Hypo Real Estate Holding AG fell as the German lender said profit tumbled 95 percent. Standard Chartered Plc sank after analysts downgraded the shares on speculation the bank may have to raise capital. Swiss Life Holdings led insurers lower after it agreed to buy stakes in MLP AG and AWD Holding AG. Eurasian Natural Resources Corp. paced a retreat among mining companies.

Europe's Dow Jones Stoxx 600 Index slipped 0.7 percent to 287.25, the steepest decline since the week ended July 11. The benchmark is down 21 percent this year as asset writedowns and credit losses at financial firms topped $500 billion worldwide, threatening to prolong the slowdown in global economic growth.

JPMorgan's figures ``spooked investors and triggered profit-taking in financials,'' said Piers Hillier, the London- based head of European equities at WestLB Mellon Asset Management who oversees the equivalent of $8.8 billion. ``Concern Standard Chartered will need to raise more capital didn't help. We've also seen a sharp fall-off in commodities.''

Crude oil, gold, silver and copper all retreated this week as a strengthening dollar reduced the appeal of commodities as alternative investments.

National benchmark indexes declined in 11 of the 18 western European markets. France's CAC 40 dropped 0.9 percent. The U.K.'s FTSE 100 fell 0.6 percent, while Germany's DAX sank 1.8 percent.

Economy Watch

Economic reports also weighed on equities as higher-than- forecast U.S. consumer prices and jobless claims added to concern inflation is accelerating while growth slows. Europe's economy contracted in the second quarter for the first time since the launch of the euro almost a decade ago, data also showed.

JPMorgan, the second-biggest U.S. bank by market value, said it lost $1.5 billion on mortgage-backed assets in less than two months and that subprime writedowns are expected to continue to rise ``significantly'' during the second half of this year, with ``deterioration'' expected to continue into 2009.

Hypo Real Estate declined 6.5 percent after Germany's second-largest commercial-property lender said second-quarter pretax profit plunged 95 percent because of writedowns on debt- related investments.

Deutsche Bank AG, Germany's biggest bank, fell 3.1 percent. Barclays, the U.K.'s third-largest lender, retreated 4.6 percent.

Europe's Stoxx 600 Banks Index has lost 30 percent this year, the steepest slump among 18 groups in the broader index.

Earnings Estimates

Earnings for financial firms in the Stoxx 600 will decline 25 percent this year, more than 13 times the projected drop for all companies in the measure, according to analysts' estimates compiled by Bloomberg. Forecasts at the start of the year saw profit for the group increasing 4.5 percent.

Standard Chartered retreated 11 percent. Citigroup Inc. cut its recommendation on the shares to ``sell'' from ``hold,'' saying the U.K. bank that earns most of its money in Asia faces ``a choice of slower growth or having to raise equity to support its capital ratios.''

Swiss Life slumped 16 percent after Switzerland's largest life insurer agreed to buy stakes in MLP and AWD from AWD Chief Executive Officer Carsten Maschmeyer for a total of 427 million euros ($627 million).

UBS AG downgraded Swiss Life shares to ``sell'' from ``neutral,'' citing the risk of further earnings dilution if the company were to bid for MLP.

Stake Purchase

ENRC declined 14 percent. Kazakhmys Plc, Kazakhstan's biggest copper producer, paid 402 million pounds ($750 million) to raise its stake in the ferrochrome producer to 25 percent. Kazakhmys shares lost 6 percent.

Xstrata Plc, which is making a hostile 5 billion-pound bid for Lonmin Plc, dropped 3.8 percent. Norsk Hydro ASA, the world's fifth-largest aluminum producer, fell 4.7 percent.

Michael Page International Plc, the U.K.'s second-biggest recruitment company, sank 11 percent after saying it rejected a 1.3 billion-pound takeover from Adecco SA and ended talks.

CSM NV tumbled 19 percent, the steepest drop in the Stoxx 600. The world's largest supplier of ingredients to bakeries said first-half profit slumped 63 percent from a year earlier, when the company had a gain from selling its sugar unit. CSM also forecast price increases would hurt sales in the U.S. this year.

Arcandor AG sank 12 percent. Germany's biggest department- store operator reported a third-quarter loss, said operating profit fell and cut its forecast after sales at the company's Karstadt chain declined.

William Demant Holding A/S lost 14 percent. The world's second-largest hearing-aid maker said first-half profit fell 18 percent after the economic slowdown in the U.S. curbed demand for its most expensive products. Earnings missed analysts' estimates.