European Stocks Sink as Greece Calls Referendum; Banks Tumble

By Sarah Jones - Nov 1, 2011 9:08 PM GMT+0700

European stocks sank the most in four weeks, as Greece’s government called a referendum on its latest bailout package, spurring concern that the country may default.

Credit Suisse Group AG (CSGN) and Danske Bank A/S led a selloff in lenders, both sliding more than 7 percent, after earnings fell short of analysts’ estimates. National Bank of Greece SA (ETE) sank 13 percent in Athens trading. Mining companies tumbled after a gauge of Chinese manufacturing dropped to the lowest level since February 2009.

The Stoxx 600 slid 3.4 percent to 235.25 at 2:04 p.m. in London, extending yesterday’s 2.2 percent selloff and paring last month’s biggest advance since 2009. The VStoxx Index (V2X), which measures the cost of protecting against a decline in shares on the Euro Stoxx 50 Index, jumped 20 percent to 42.13, its biggest gain since Sept. 5.

“After the euphoria from last week’s euro-zone summit, this is a dose of cold water and introduces further uncertainty into the market,” said Edmund Shing, chief European strategist at Barclays Plc (BARC) in London. “It just shows you how important details have become. It’s not as bad as the market makes out and is more of a knee-jerk reaction. We don’t yet know when the referendum will take place.”

National benchmark indexes tumbled at least 2.5 percent in all 16 western European markets that were open today, except Iceland. France’s CAC 40 Index dropped 4.9 percent, Germany’s DAX Index sank 4.7 percent, Italy’s FTSE MIB Index plunged 6.5 percent and Greece’s ASE Index plunged 6.8 percent.

Greece Calls Referendum

U.S. stocks extended the selloff and Asian shares tumbled after Greek Prime Minister George Papandreou called a referendum on the euro area’s latest bailout package, saying voters will give him their support to proceed with economic reforms.

Papandreou’s gambit risks pushing the country into default if voters reject the financial accord. An opinion poll published on Oct. 29 showed most Greeks believe the euro area’s expanded bailout package and debt writedown are negative.

Leaders from the Group of 20 meet at a summit on Nov. 3-4 in Cannes, France, a week after the euro area’s authorities pledged to expand their rescue fund to 1 trillion euros ($1.4 trillion). They have already sought financial help from China and cooperation from the International Monetary Fund.

Credit Suisse Plunges

Credit Suisse slumped 7.7 percent to 23.62 Swiss francs after the second-largest Swiss bank announced 1,500 more job cuts and plans to reorganize its securities unit after the division reported its first quarterly loss since 2008.

Third-quarter net income rose 12 percent to 683 million Swiss francs ($765 million), helped by an accounting gain from the widening of its credit spreads, the Zurich-based bank said. That missed the 979 million-franc mean estimate of 12 analysts surveyed by Bloomberg.

Danske Bank tumbled 10 percent to 66.85 kroner after Denmark’s largest lender reported an unexpected third-quarter net loss of 384 million kroner ($70 million). That compares with the average analyst estimate of a 763 million-krone profit in a Bloomberg survey. The Danish lender also announced plans to cut 2,000 jobs.

A gauge of European banks sank 6.5 percent, its largest decline since Aug. 18. National Bank of Greece and EFG Eurobank Ergasias SA (EUROB), the country’s two biggest lenders, lost 13 percent to 1.50 euros and 16 percent to 57 euro cents, respectively.

Barclays Plc dropped 8.8 percent to 178.2 pence after UBS AG lowered its recommendation for Britain’s second-largest bank by assets to “neutral” from “buy.”

Commodity Companies Retreat

Mining companies declined with copper prices as a report showed a drop in manufacturing in China, the world’s biggest consumer of the base metal.

The Purchasing Managers’ Index fell to 50.4 in October from 51.2 in September, the China Federation of Logistics and Purchasing said in a statement. That compared with the median economist forecast of 51.8 in a Bloomberg News survey. A reading above 50 indicates expansion.

Xstrata Plc (XTA) declined 5.6 percent to 986.8 pence, Antofagasta Plc (ANTO) retreated 5 percent to 1,109 pence and BHP Billiton Ltd. (BHP), the world’s largest mining company, lost 2.8 percent to 1,913 pence.

Legal & General Falls

Elsewhere, Legal & General Group Plc (LGEN) slid 7 percent to 102.8 pence, pacing a selloff in financial shares. The company posted a 0.7 percent drop in third-quarter sales to 1.34 billion pounds ($2.1 billion) because of lower revenue from insured savings and annuities.

Sandvik AB (SAND) dropped 6.5 percent to 84.25 kronor. The world’s biggest maker of metal-cutting tools posted a 60 percent plunge in third-quarter profit to 626 million kronor ($94 million) after a writedown on goodwill for a business it plans to sell. The company also said it will cut 365 jobs in Sweden.

Just over half of the 150 companies in the Stoxx 600 that have released earnings since Oct. 11 beat analysts’ profit estimates, according to data compiled by Bloomberg.

Daimler AG (DAI) paced a selloff in carmakers, falling 5.7 percent to 34.91 euros after Barclays downgraded the world’s third-largest maker of luxury vehicles to “underweight” from “equal weight.”

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net