A series of rating downgrades from Goldman Sachs, and profit warnings from US financial giants and merger partners, Chase Manhattan and J.P. Morgan, put the European banking sector under pressure.
Goldman Sachs set the tone for a difficult day in financials. It announced the downgrades, saying that weaker capital markets trends in the fourth quarter of 2000, and possible higher US loan loss provisions in 2001 could lead to earnings forecasts cuts.
Chase and Morgan, which agreed to merge in September in a $35 billion deal, added to the misery. A joint statement, warning that fourth-quarter earnings were expected to be substantially below analysts' estimates, also cited difficult capital market conditions.
Among the banks responding to the Goldman Sachs downgrades, ABN Amro fell 5.4 per cent to €24.70 and BNP Paribas lost 4 per cent to €92. Credit Lyonnais dropped 3 per cent to €38.90, Deutsche Bank 4.6 per cent to €87.14 and SG 4.8 per cent to €63.80.
There was a growing sense of concern in the telecoms sector about debts following the expensive business of acquiring new mobile phone licences and building UMTS networks for them.
Following Moody's shot across the bows on Wednesday over KPN's debt rating, the Bank of England added to the pressure by warning that risks for banks lending to the sector had increased.
Vodafone closed 5.6 per cent lower at 257p (€4.25), while Deutsche Telekom was off 1.3 per cent at €38.38 and Sonera closed down 3 per cent at €24.61. KPN Telecom fell 5.2 per cent to €14.67 after it said it was paying €500 million to France Telecom for the 50 per cent its does not already own of KPN Orange. France Telecom slipped 0.4 per cent to €102.50.
German electronics and industrial group Siemens fell 2.5 per cent to 139.20. Volkswagen was a weak feature among mainstream car makers, losing 3.3 per cent at €52.67 on concern about flagging European demand. DaimlerChrysler shed 39 cents at €49.35.
Europe's largest chemicals group BASF put on 0.7 per cent to 46.23 amid reports that it was likely to announce today the sale of its drugs business Knoll to Abbott Laboratories rather than US pharmaceuticals group Eli Lilly as had been expected.
