European Stocks Decline With Italy After Stress Tests

By Sofia Horta e Costa  

A slide in Italy’s lenders sent European stocks lower, after the region’s shares posted their best weekly rally of the year.
The Stoxx Europe 600 Index fell 0.2 percent to 326.46 at 10:32 a.m. in London, erasing a gain of as much as 0.9 percent. A gauge of lenders slid 1.3 percent after earlier rising as much as 1.4 percent, as Banca Monte dei Paschi di Siena SpA sank 18 percent. The Italian lender is among the 25 banks that failed the European Central Bank’s health check and said it hired UBS AG and Citigroup Inc. to explore all strategic options. The stock move pushed Italy’s FTSE MIB Index for the second-biggest decline among 18 western-European markets today.
“A relief rally would not be justified,” said Michael Woischneck, a portfolio manager at Lampe Asset Management in Dusseldorf, Germany. “There are still a lot of
problems to fix, and Italian banks still have a lot of work to do. Even for the banks that passed, what is there to be relieved about? They still have to find a business model and figure out how to get back into lending. The point is -- what next? These are still unanswered questions that a stress test just cannot answer.”
The ECB said yesterday none of the region’s largest institutions is lacking in its assessment of the quality of balance sheets. Eight of those with a shortfall haven’t already plugged capital gaps or satisfied the central bank with plans to shrink. That means 6.35 billion euros ($8.1 billion) remains from a 25 billion-euro hole, with half of that in Italy. No French, German or Spanish institutions were required to raise more funds.

Monte Paschi

With its 18 percent slump to 82.5 euro cents, Monte Paschi posted the biggest drop in the Stoxx 600. Banca Carige SpA, the other Italian lender that needs additional funds, lost 13 percent to 8.1 euro cents. Banca Popolare di Milano Scarl fell 5.2 percent to 61 euro cents. The FTSE MIB declined 2.3 percent.
Lloyds Banking Group Plc (LLOY) slid 2.3 percent to 75 pence. Jefferies Group LLC lowered its rating on the stock to the equivalent of a sell, saying the lender probably won’t pay a dividend until 2016 as it will require a higher capital ratio than initially thought.
Some of the biggest Stoxx 600 gainers today are also lenders. Austria’s Erste Group Bank AG rallied 4.5 percent to 19.75 euros, as Raiffeisen Bank International AG climbed 2.2 percent to 17.36 euros. Germany’s Commerzbank AG gained 1 percent to 11.90 euros.
In Germany, business confidence fell for a sixth month in October, with the Ifo institute’s business climate index dropping more than economists had forecast. The nation’s DAX Index lost 0.3 percent after rising as much as 1.1 percent earlier.

Greater Volume

The number of shares changing hands in Stoxx 600-listed companies was 75 percent greater than the average of the past 30 days, data compiled by Bloomberg show.
The Stoxx 600 climbed 2.7 percent last week, halting its longest losing streak since June 2013, as economic data beat forecasts and speculation grew that central banks will do more to support the recovery. The gauge rebounded 5.5 percent from its low on Oct. 16 through the end of last week.
Standard & Poor’s 500 Index futures slipped 0.2 percent today, paring an earlier increase of as much as 0.3 percent. The index posted its first weekly gain in five.
Among non-banking stocks that are moving today, TNT Express NV (TNTE) lost 6.7 percent to 4.50 euros. The Dutch parcel company reported an operating loss for the third quarter because of provisions related to restructuring and a competition case in France.
Hermes International (RMS) SCA advanced 2.9 percent to 239.30 euros after Natixis SA recommended buying shares of the French maker of Birkin handbags.