By Adria Cimino
Feb. 23 (Bloomberg) -- Stocks in Europe and Asia climbed, sending the MSCI World Index higher for the first time in 10 days, and U.S. futures gained on speculation the U.S. government will increase its control over Citigroup Inc. Treasuries fell.
Citigroup surged 24 percent in Germany after the Wall Street Journal said the bank is in talks with federal officials that may result in the government holding as much as 40 percent of its common stock. Barclays Plc and Hang Seng Bank Ltd., Hong Kong’s second-largest by assets, added more than 4 percent. Royal Bank of Scotland Group Plc climbed 15 percent after a person familiar with the situation said RBS plans to cut costs by more than 1 billion pounds ($1.44 billion) and split into two units.
“If we can get confidence back in the system that banks capital is adequate, we can get banks out there lending,” Jane Coffey, head of equities at Royal London Asset Management Ltd., which manages about $63 billion, said in a Bloomberg Television interview. “It will be much easier to get a recovery going.”
The MSCI World Index increased 0.6 percent to 777.76 at 11:20 a.m. in London. The index of 23 developed countries lost 12 percent in the previous nine days as companies from Anglo American Plc to Cie. de Saint-Gobain SA indicated the recession is worsening.
Ten-year Treasury yields added five basis points to 2.84 percent today, according to BGCantor Market Data, on speculation that a bigger government stake in Citigroup would raise the likelihood of additional debt sales as borrowing soars.
Futures on the Standard & Poor’s 500 Index gained 1.3 percent on optimism that larger government control of Citigroup will reduce the risk that bank failures will deepen the global recession. The MSCI Asia Pacific Index climbed 0.4 percent.
Stoxx 600, Dow Average
Europe’s Dow Jones Stoxx 600 Index gained 0.7 percent as Vodafone Group Plc advanced. The regional gauge and the Dow Jones Industrial Average in the U.S. closed at six-year lows last week.
The Stoxx 600 has retreated 51 percent since the start of last year as credit-related losses at financial firms worldwide climbed to $1.1 trillion and Europe, the U.S. and Japan fell into the first simultaneous recessions since World War II.
The U.S. contraction will be the worst in more than three decades as job losses mount and consumers and companies retrench, a survey of business economists showed. Billionaire investor George Soros said the current economic upheaval has its roots in the financial deregulation of the 1980s and signals the end of a free-market model that has since dominated capitalist countries.
Citigroup, JPMorgan
Citigroup jumped 24 percent to $2.42 in Germany, while JPMorgan Chase & Co. added 4 percent to $20.70.
Executives at New York-based Citigroup have discussed converting the government’s preferred shares in the bank into common equity as a way to quell concerns about capital adequacy while heading off all-out nationalization, according to a person familiar with the matter.
The bank is talking to regulators about expanding the U.S. stake to as much as 40 percent, the Wall Street Journal reported. Citigroup spokeswoman Shannon Bell declined to comment.
Bank of America Corp. climbed 9.5 percent to $4.15. The company’s Chief Executive Officer Kenneth Lewis, under siege from investors on concern Bank of America may be taken over by the U.S. government, said he doesn’t need any more federal assistance and can “make it through this downturn on our own.”
Lewis, speaking in a memorandum to employees on Feb. 20 as his stock price plummeted as much as 36 percent, said he aimed to “prove cynics and critics wrong” by spurning attempts at nationalization. Bank of America has already received $45 billion in bank rescue funds.
‘Toxic Waste’
“Banks are pivotal before sentiment can improve,” Jeremy Batstone-Carr, an equities analyst at Charles Stanley & Co. in London, said in a Bloomberg Television interview. “There are some indications that we’re beginning to get answers on how to address the toxic waste. Eventually all of these efforts will gain some traction.”
Barclays soared 8.2 percent to 103 pence in London. Hang Seng Bank gained 4.4 percent to HK$85.60.
Royal Bank of Scotland jumped 15 percent to 22.1 pence. The bank plans to cut costs, partly by scaling back investment banking, as Chief Executive Officer Stephen Hester tries to rescue the lender, said a person familiar with the situation.
RBS will split itself into two units over the next three to five years, with one entity including the U.K. and other “core” businesses and the second holding operations that aren’t central to the Edinburgh-based lender, said the person who declined to be identified because the planning is confidential.
Vodafone added 1.6 percent to 127.55 pence. The world’s largest mobile-phone company plans to cut hundreds of jobs in the U.K. to reduce costs and protect earnings amid the economic slowdown, two people with direct knowledge of the plan said. Simon Gordon, a Vodafone spokesman, declined to comment.
Swiss Life
Swiss Life Holding AG advanced 12 percent to 54.8 francs. Switzerland’s biggest life insurer was raised to “buy” from “hold” at Citigroup.
Gauges of insurers, banks and basic-resource companies all rose more than 2 percent for the biggest gains among the Stoxx 600’s 19 industry groups.
Xstrata Plc, Europe’s largest zinc producer, climbed 5.4 percent to 678 pence. Lonmin Plc, the world’s third-biggest platinum producer, gained 5 percent to 1,065 pence. Lead, nickel and zinc prices advanced in London, while copper rebounded from the lowest close in a month amid signs that price declines driven by the global recession may have encouraged buying of the metal.
MSCI World Valuations
Last week’s slump left the MSCI World Index valued at 10 times the earnings of its 1,684 companies, less than half this decade’s average ratio of 21.7, data compiled by Bloomberg show.
The S&P 500 trades at 10.5 times earnings, the cheapest since 1985. Predictions based on dividends show shares may still be overvalued by 46 percent, data compiled by Bloomberg show.
Twenty-five companies in the S&P 500 saved almost $17 billion by cutting or suspending outlays this year, more than all the reductions from 2003 to 2007, when the index returned 83 percent. On a per-share basis, S&P 500 companies may trim payouts 13 percent this year, the biggest drop since 1942, S&P data show.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
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