European Stocks Surge on Fannie, Freddie Takeover; Banks Climb

By Michael Patterson

Sept. 8 (Bloomberg) -- European stocks rose the most since January, led by financial and construction companies, on speculation the U.S. government's takeover of Fannie Mae and Freddie Mac will shore up the mortgage market.

UBS AG, the European bank hardest hit by subprime-related losses, jumped 11 percent and Deutsche Bank AG, Germany's largest lender, surged 7.4 percent after Treasury Secretary Henry Paulson said the government will provide short-term funding to the two biggest U.S. mortgage-finance companies and purchase debt backed by home loans. Vinci SA, the world's biggest builder, climbed 4.6 percent.

The takeover of Fannie Mae and Freddie Mac ``is the beginning of the end of the problem,'' Lucy MacDonald, the London-based chief investment officer of global equities at RCM Ltd., which has $100 billion under management, said in an interview on Bloomberg Television. ``We'll see a floor put under financial shares.''

Europe's Dow Jones Stoxx 600 Index climbed 3.7 percent to 282.17 as of 2:43 p.m. in New York, the biggest gain since Jan. 24. The London Stock Exchange said a computer failure caused the longest halt of trading in more than eight years and that it was still trying to re-connect customers.

The Stoxx 600 has tumbled 23 percent this year as the biggest surge in mortgage defaults in at least three decades sparked more than $500 billion of writedowns and losses at banks from UBS to Deutsche Bank to HSBC Holdings Plc. All 18 industries in the Stoxx 600 retreated in 2008 as a drop in lending pushed the euro-region economy to the brink of a recession.

Global Rout

Concern that failures by Fannie Mae and Freddie Mac, which make up almost half the U.S. home-loan market, would spark further losses at financial institutions around the world helped fuel share declines that wiped out $17 trillion of global market value since October.

National benchmark indexes advanced in all 18 western European markets today. France's CAC 40 gained 4.1 percent, and Germany's DAX added 2.5 percent.

The U.K.'s FTSE 100 rose 3.8 percent before trading was halted on the London Stock Exchange. The computer fault, which started at about 9 a.m. today, has left some traders without prices and unable to buy or sell shares for about six hours.

Attempts to fix its biggest computer failure since April 2000 is ``taking longer than expected,'' the London Stock Exchange Group Plc, Europe's oldest independent exchange, said on its Web site.

Paulson and Federal Housing Finance Agency Director James Lockhart yesterday placed Fannie Mae and Freddie Mac in a government-operated conservatorship. The Treasury may purchase up to $200 billion of stock in the firms to keep them solvent.

Last in Line

Fannie Mae fell 79 percent and Freddie Mac lost 71 percent today after the Treasury's plan eliminated their dividends and left common stockholders last in line for any claims.

``This is a big step to improving the value of assets and liquidity in the financial system,'' said Brian Barish, who helps oversee about $8 billion as president of Denver-based Cambiar Investors LLC. ``But I don't think an explosive rally would be justified. A lot of the problems are still out there and this isn't going to change that.''

UBS climbed 11 percent to 24.76 francs. Deutsche Bank, Germany's largest bank, advanced 7.4 percent to 60.91 euros. Banks and insurers accounted for the 10 biggest gains in the Dow Jones Stoxx 50 Index, a gauge of the largest European companies.

``There's only one story that means anything as the new trading week gets under way and that's the nationalization of Fannie Mae and Freddie Mac,'' said Matt Buckland, a trader at CMC Markets in London. The takeover ``should take a lot of uncertainty out of the market in one quick move.''

Vinci, Total

Vinci gained 4.6 percent to 37.405 euros. Royal BAM Groep NV, the biggest Dutch construction company, advanced 2.9 percent to 11.57 euros.

Total SA, Europe's third-biggest oil company, gained 3 percent to 45.63 euros. Eni SpA, the region's fourth-largest, advanced 2.5 percent to 20.76 euros.

Oil rebounded from a five-month low as Hurricane Ike swept across Cuba, delaying resumption of crude production in the Gulf of Mexico. Crude for October delivery rose 1.7 percent to $108.06 a barrel in New York.

Raw-materials producers in the Stoxx 600 climbed 5.1 percent as a group after copper jumped 1.6 percent in New York. Gold, tin and zinc also rose. Boliden AB, Europe's second-largest zinc producer, gained 7 percent to 38.4 Swedish kronor.

Air France-KLM Group, Europe's biggest airline, said passenger traffic rose 2.8 percent last month, led by travel to the Americas. The shares added 2.5 percent to 17.08 euros.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.