By Adam Haigh
Jan. 19 (Bloomberg) -- Stocks in Europe fell as investors speculated government efforts to shore up the financial system won’t be enough to prevent the global economy from weakening.
Royal Bank of Scotland Group Plc led declines among banks, slumping 48 percent, after saying it expects to report a loss for 2008. BASF SE dropped 4.4 percent as the world’s largest chemical producer reduced production and said it may cut additional jobs after demand deteriorated “significantly.” Stock markets in the U.S. are closed today for the Martin Luther King Jr. holiday.
The Dow Jones Stoxx 600 Index slid 1.3 percent to 190.47 at 1:18 p.m. in London. The measure has tumbled 11 percent over the past nine days as companies from Deutsche Bank AG to Alcoa Inc. fueled concern earnings will deteriorate further as the global economic slump deepens.
The euro-area economy will shrink 1.9 percent this year, the first time since the currency was introduced a decade ago, the European Commission said today. The European Central Bank, last month predicted a 0.5 percent contraction for 2009.
Spain had its AAA sovereign credit rating removed by Standard & Poor’s in the second downgrade of a euro-region government in five days, as the country’s first recession in 15 years swelled the budget deficit. Greece’s rating was cut one step to A- on Jan. 14.
Billionaire Warren Buffett, chairman of Berkshire Hathaway Inc. and one of the world’s most successful investors, said the U.S. has been struck by an “economic Pearl Harbor,” according to remarks aired on Dateline NBC yesterday.
Earnings Outlook
President-elect Barack Obama’s advisers signaled they will emphasize getting credit to consumers and businesses rather than helping banks as the new administration deploys the second half of the $700 billion rescue fund.
RBS sank 48 percent to 18.1 pence after saying it expects to post a full-year loss before exceptional goodwill impairments of as much as 8 billion pounds. In addition, the bank may write down the value of past acquisitions by as much as 20 billion pounds.
Analysts forecast earnings at financial companies in the Stoxx 600 will rise 42 percent in 2009 following a 59 percent slide last year, according to Bloomberg data. The benchmark index posted its worst annual slump on record in 2008 as more than $1 trillion in credit losses and writedowns eroded profits.
U.K. Prime Minister Gordon Brown’s government tightened its grip on Britain’s financial system, guaranteeing toxic assets and giving the Bank of England unprecedented power to buy securities. The plan will increase the cost of bailing out the nation’s banks by at least 100 billion pounds ($147 billion), the Treasury said today. This sent the pound lower against the euro and the dollar.
‘Disappointed’
“Many initiatives have been announced for U.K. banks this morning, but we are disappointed not to see the full removal of ‘bad assets’ from balance sheets,” JPMorgan Chase & Co. banking analyst Carla Antunes Da Silva wrote in a note to clients.
Barclays Plc, the U.K. bank that turned down government funding last year, slipped 2.8 percent to 95.3 pence even after saying 2008 earnings will exceed estimates and calling its 25 percent share-price slump on Jan. 16 unjustified.
BASF declined 4.4 percent to 22.72 euros after the company said demand for all chemical products has failed to pick up in the first half of January.
Cie. Financiere Richemont SA slid 4.2 percent to 16.83 francs. The world’s largest jewelry maker said third-quarter sales declined 7 percent as customers in Europe and North America reduced spending on Cartier necklaces and Chloe fashions.
Pearson Plc led a rally among media companies, which posted the steepest gain among all 19 industry groups on the Stoxx 600. The publisher of the Financial Times newspaper added 5.3 percent to 629.5 pence after saying earnings excluding some items rose about 20 percent in 2008, exceeding analysts’ estimates.
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
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