European Stocks Drop for Second Day as Banks Slide on Concern Over Funding

By Peter Levring - Jan 5, 2012 7:17 PM GMT+0700

European stocks (SXXP)declined for a second day as UniCredit SpA led banks lower amid concern that more lenders will be forced to raise capital. U.S. index futures and Asian shares fell.

UniCredit, which announced a rights offer at a 43 percent discount yesterday, slumped to a 19-year low. Societe Generale (GLE) SA dropped 4.5 percent after announcing a cut in corporate- and investment-banking staff.

The Stoxx Europe 600 Index fell 0.7 percent to 247.77 at 12:15 p.m. in London. The gauge lost 11 percent last year as policy makers struggled to contain the region’s debt crisis. Futures on the Standard & Poor’s 500 Index (SPH2) retreated 0.7 percent. The MSCI Asia Pacific Index slid 0.7 percent.

“UniCredit’s capital call spooked investors and reduced confidence in banking short term,” said Torben Hoeyer, the chief equity adviser at Nordea Private Banking in Copenhagen. “Now rumors are going round other banks may also sell shares and that’s pushing stocks lower.”

Italy’s largest lender declined 11 percent to 4.81 euros, the lowest since September 1992. The bank announced a plan to sell new shares at a discount because of a deepening of the debt crisis, Chief Executive officer Federico Ghizzoni told Il Sole 24 Ore in an interview. He added that he expects other banks raising money to do the same.

French Bond Sale

France sold 7.96 billion euros ($10.2 billion) of debt today as borrowing costs rose. The government sold 4.02 billion euros of benchmark 10-year bonds at an average yield of 3.29 percent from 3.18 percent in an auction on Dec. 1. The nation also sold debt maturing in 2023, 2035 and 2041.

Germany yesterday sold 4.1 billion euros of bonds kicking off a rush for funding that may determine whether euro-area leaders can save the 13-year-old single currency. Italy and Spain will raise funds in the coming weeks. Sovereign-debt sales in the region may reach 262 billion euros in the first quarter, according to Deutsche Bank AG forecasts.

In Greece, Prime Minister Lucas Papademos said that deeper cuts in incomes are the only way for the country to remain in the euro area and receive more financing from international creditors. These steps are necessary to avert an economic collapse that may otherwise come as soon as March, he said.

In Germany, retail sales (GRFRIAMM), adjusted for inflation and seasonal swings, decreased 0.9 percent in November, the Federal Statistics Office in Wiesbaden said. Economists had forecast a gain of 0.2 percent in a Bloomberg News survey.

U.S. Economic Data

Service industries in the U.S. probably grew in December at the fastest pace in three months, showing the economy picked up as 2011 drew to a close, economists said before a report today.

The Institute for Supply Management’s index of non- manufacturing (NAPMNMI) industries, which account for about 90 percent of the economy, rose to 53 from 52 in November, according to the median projection of 65 economists surveyed by Bloomberg News. The number of applications for jobless benefits (INJCJC) fell last week, another report may show.

A gauge of European banks was the worst performer among the 19 industry groups (SXXP) on the Stoxx 600.

Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, Spain’s biggest lenders, declined 3.3 percent to 5.60 euros and 4 percent to 6.37 euros respectively after the Financial Times cited Economy Minister Luis de Guindos as saying banks will have to allocate as much as 50 billion euros in further provisions for troubled real-estate assets.

Societe Generale Job Cuts

Societe Generale, France’s second-largest lender, dropped 4.5 percent to 16.23 euros after saying it will cut about 1,580 jobs at its corporate and investment bank, about 10 percent of the unit’s total staff.

Nokia Oyj rose 5.7 percent to 4.11 euros after Credit Suisse Group AG raised its recommendation to “outperform” from “underperform.” The company considers Risto Siilasmaa, the founder of security software maker F-Secure Oyj, as a frontrunner to become its next chairman, a person familiar with the matter said.

Petrofac Ltd. (PFC), the U.K. oil-services provider, advanced 1.9 percent to 1,493 pence after agreeing with Schlumberger Ltd. (SLB) to cooperate on production projects.

Lundin Petroleum AB, the Swedish oil explorer and producer, rose 1.4 percent to 178.20 kronor after raising reserve estimates by 21 percent.

Brenntag AG (BNR) fell 1.3 percent to 71.30 euros, its biggest drop since Dec. 7. Brachem Acquisition SCA sold an 8.7 percent stake in the chemical distributor to institutional investors for about 315 million euros.

CRH Plc (CRH) and HeidelbergCement AG (HEI) fell 2.1 percent to 15.15 euros and 3.4 percent to 33.41 euros, respectively. Credit Suisse lowered its recommendation on both companies to “underperform” and said volumes, prices and margins in the building-materials business will remain “challenged.”

To contact the reporter on this story: Peter Levring in Copenhagen at Plevring1@bloomberg.net or

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