European Stocks Fall; Stoxx 600 Slumps to Lowest Since 2003

By Adam Haigh

Jan. 23 (Bloomberg) -- European stocks fell, sending the Dow Jones Stoxx 600 Index to the lowest in more than five years, as concern deepened the global economic slump will erode earnings.

Prudential Plc, Britain’s second-largest life-insurance company, retreated 11 percent amid speculation insurers may run short of funds. Infineon Technologies AG, Europe’s second-biggest semiconductor maker, sank 7.7 percent as its Qimonda unit filed for insolvency. Ubisoft Entertainment SA slumped 19 percent after revising its sales forecast.

The Stoxx 600 dropped 1.7 percent to 179.69 as of 2:50 p.m. in London, on course for the lowest close since April 2003. Disappointing earnings from Nokia Oyj to Microsoft Corp. and concern banks may need to raise more capital to shore up their balance sheets has sent the measure to its second week of losses.

“Doom and gloom is everywhere,” said Andy Brough, a London-based fund manager at Schroder Investment Management, which has about $12.7 billion under management. “It’s far harder for companies to come out saying they have actually noticed something improving,” he told Bloomberg Television.

The U.K. economy shrank more than economists forecast during the fourth quarter in the biggest contraction since 1980. Gross domestic product fell 1.5 percent from the previous quarter.

National benchmark indexes decreased in all 18 western European markets except Belgium and Ireland. Germany’s DAX dropped 2.4 percent. France’s CAC 40 retreated 2.3 percent as Axa SA declined. The U.K.’s FTSE 100 slipped 1.4 percent, led lower by Legal & General Group Plc.

Cutting Dividends

Dividends in Europe may fall 10 percent in 2008 and 3 percent this year, UBS AG equity strategists led by Nick Nelson wrote in note today. U.S. companies are reducing dividends at the fastest rate in half a century, squeezing investors who depend on the payouts more than ever to boost returns, according to data compiled by Bloomberg.

The worst financial crisis since the Great Depression is forcing companies to hoard cash after earnings before one-time costs dropped 38 percent last year, the most since 2001, according to data compiled by Bloomberg.

Analysts have cut estimates for company earnings worldwide by $1 trillion since October, suggesting profits may tumble as much as 45 percent this year amid the global recession, Societe Generale SA’s Andrew Lapthorne wrote in a note today.

Earnings at companies in the Stoxx 600 will fall 1.4 percent on average this year following a 17 percent slump in 2008, estimates compiled by Bloomberg show.

Credit Losses

The benchmark for European equities has slumped 51 percent since the beginning of last year as credit-related losses and writedowns topped $1 trillion and the U.S., Japan and Europe entered the first simultaneous recessions since World War II.

Prudential sank 11 percent to 272.25 pence. Legal & General, Britain’s third-biggest life-insurance company, retreated 8.8 percent to 53.6 pence.

“There are concerns over liquidity,” said Kevin Ryan, a London-based analyst at ING Groep NV. “There is just general panic. The business outlook is clearly muted by the economic situation.”

Officials at Prudential and Legal & General declined to comment.

Axa, France’s largest insurer, dropped 8.3 percent to 11.20 euros. Swiss Reinsurance Co. sank 16 percent to 28.08 francs.

Infineon retreated 7.7 percent to 66 cents. The company’s Qimonda unit filed to open insolvency proceedings this morning after failing to secure sufficient financing following a slide in memory-chip prices this year. Infineon said it will increase its provisions in the first quarter.

Ubisoft, Mining Companies

Ubisoft sank 19 percent to 10.55 euros as Europe’s largest maker of video games revised its full-year sales forecast.

BHP Billiton Ltd., the world’s biggest mining company, lost 2.1 percent to 1,138 pence. Anglo American Plc retreated 2.6 percent to 1,236 pence. Nomura Holdings Inc. cut its recommendation for both companies to “neutral” from “buy.”

Copper and aluminum were on course for a second consecutive weekly decline in London on concern that economic slowdowns in the U.S. and China are set to deepen, sapping demand for industrial metals.

Atlas Copco AB slid 7 percent to 53.25 kronor after the largest maker of air compressors had its recommendation lowered to “equal-weight” from “overweight” by Morgan Stanley, saying “we want to sell stocks whose earnings have seen the greatest surge from the commodity boom, where pricing is deteriorating and there is limited benefit from decreasing operating costs.”

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net