Europe Stocks Dip to Five-Year Low This Week on Profit Concern

By Alexis Xydias

Nov. 22 (Bloomberg) -- European stocks had their second- worst week this year as concern deepened that a worsening economy is stifling profits. The region's Dow Jones Stoxx 600 Index slumped 12 percent to a five-year low.

BASF SE, the world's largest chemical company, tumbled 16 percent after cutting its profit forecast, while SSAB Svenskt Staal AB, the biggest supplier of high-tensile steel, fell 21 percent as it predicted a drop in shipments. BNP Paribas SA led banks lower on speculation lenders will need more money.

The Stoxx 600's drop was the steepest since the 22 percent tumble in the week ended Oct. 10, sending the regional benchmark to its lowest since April 2003. A report on Nov. 20 showed U.S. jobless claims rose to the highest since 1992 and the same day Switzerland's central bank unexpectedly slashed its key interest rate by a percentage point as the economic outlook deteriorated.

``When you look at macro data, it is clear that the recession is synchronized globally and is certainly going to be deeper'' than recent ones, said Joost Van Leenders, strategist at Fortis Investments in Amsterdam, which oversees about $305 billion. ``If you base your assumptions on analysts' expectations, there will be more disappointments.''

The world economy slipped closer to recession this past week as companies across the world cut production and jobs. Goldman Sachs Group Inc. said the U.S., the world's largest economy, is shrinking at a 5 percent annual rate in the current quarter.

Europe's Stoxx 600 has lost 50 percent this year as almost $1 trillion in credit losses worsened the region's economic downturn and forced governments to bail out banks. Stocks may fall further and only rebound in the second half of next year as investors favor high-yielding bonds in the face of a prolonged contraction in corporate earnings, Exane BNP Paribas said.

Profit Estimate Cuts

Analysts have cut profit estimates for 48 percent of stocks they cover worldwide, the most in at least 15 years, and more downgrades are likely as the economy slows, JPMorgan Chase & Co.'s quantitative analysts said this week.

BASF fell 4.2 euros to 21.68. The company on Nov. 19 lowered its profit forecast for the second time and said it plans to idle 80 factories because of ``massive decline in demand.''

SSAB the same day said shipments will fall in the fourth quarter from a year earlier after demand for high-tensile steel declined ``rapidly'' in November. The shares tumbled 13.75 kronor to 50.75 in the week.

National benchmark indexes fell in all 18 western European markets. Germany's DAX Index and France's CAC 40 slumped 12 percent, while the U.K.'s FTSE 100 retreated 11 percent.

Bear Market

``It is too early to call the end to the bear market,'' Exane BNP strategists Bert Jansen, Lars Kreckel and Helene Jousse wrote in a note. ``Credit conditions will be slow to improve, while the earnings cycle is unlikely to trough before 2010.'' Stocks may gain in the second half of 2009 ``in anticipation of, rightly or wrongly, better economic times ahead,'' they wrote.

Earnings for the 1,967 companies in western Europe that reported quarterly results since Oct. 7 declined 22 percent on average, trailing expectations by 9 percent, according to Bloomberg data.

BNP Paribas, Europe's third-biggest bank, tumbled 23 percent to 35.98 euros, its lowest since 2003. Investors including Francois Chaulet at Montsegur Finance in Paris cited concern BNP may be next in line in the banking industry to raise money. The lender said its current capital ratios are in line with regulatory requirements and it doesn't need new funds.

Dexia Slides

Dexia SA, the world's largest lender to local governments, tumbled 28 percent to 3.171 euros as brokerages including Dresdner Kleinwort said $16.5 billion in U.S. investments, including subprime mortgage-backed securities, may hurt earnings. The shares also fell as analysts cut the price estimate for the stock after the bank sold its U.S. bond- insurance unit.

The Dow Jones Europe Stoxx Banks Index fell 17 percent in the week.

Enterprise Inns Plc, the U.K.'s second-biggest owner of pubs, fell 36 percent to 56 pence, its lowest since 2000 on concern about its ability to repay debt.

``Questions are going to remain around Enterprise's debt financing for the foreseeable future,'' James Ainley, an analyst at JPMorgan Chase & Co. in London, wrote in a research report this week. ``It is hard to see the stock performing until these issues are resolved.''

DSG International Plc, the U.K.'s largest electronics retailer, slumped 34 percent and the cost to protect the company's debt against default surged. Analysts including Nick Bubb at Pali International in London cited ``real concern'' about DSG's net debt and the broader outlook for the industry.

The stock pared the week's drop on Nov. 21, rebounding from its lowest close in more than 20 years, after Credit Suisse Group AG raised its rating to ``outperform,'' saying concern over Its financial failure has left the stock ``over discounted.''

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.