MARKET WRAP:EQUITIES WERE back in the firing line yesterday as fears over the strength of French banks reignited market jitters and sent stocks tumbling.
France found itself in the market crosshairs as speculation grew that it may be stripped of its AAA credit rating, while rumours regarding the financial health of its second-largest lender, Société Générale, also surfaced.
In a session described by a Dublin broker as a “bloodbath”, falls across all major European bourses wiped out the gains recorded on Tuesday.
France’s CAC 40 index slid 5.5 per cent, the biggest drop since December 2008. Germany’s DAX plunged 5.1 per cent, while the UK’s FTSE 100 lost 3.1 per cent. The Iseq gave up 2.3 per cent, though it remained off its lows for the year.
In the US, stocks fell more than 3 per cent, although reassuring comments from Bank of America chief executive Brian Moynihan over the bank’s capital levels helped to limit losses a touch.
In general European banks were “absolutely toasted”, the Dublin broker said. French bank shares led the falls, with Société Générale shedding as much as 22 per cent before paring its losses to trade down 14.7 per cent. BNP Paribas dived 9.5 per cent.
A Société Générale spokeswoman denied all market rumours about the bank. The bank also asked France’s stock-market regulator to open an investigation into the source of the rumours.
One issue that may have weighed on financials related to Greek debt, and the possibility that the EU’s plan to exchange Greek government bonds maturing by 2020 may be extended, perhaps to 2024, because of disappointing participation from the private sector.
France’s top credit rating was affirmed by all three major ratings companies as speculation that Europe’s debt crisis would spread to the region’s second-biggest economy pushed the cost of insuring its government debt against default to a record.
Moritz Kraemer, head of European sovereign ratings at SP, said the stable outlook on France’s top rating was “warranted” due to the nation’s track record of meaningful economic reform.
However, French bonds are the most costly AAA government securities to insure as investors raise bets that top-rated euro-region nations may be next in the firing line after the US was downgraded by one notch to AA+ by Standard Poor’s last Friday.
The European Central Bank bought Italian and Spanish bonds for a third day as it tries to halt a market rout, pushing Spain’s 10-year yield below 5 per cent for the first time since December.
The yield on 10-year Irish bonds rose slightly yesterday to 9.552 per cent. – (Additional reporting: Reuters)
