European Stocks Drop From Five-Week High as Banks Decline

By Sofia Horta e Costa

European stocks declined, as banks dropped and investors considered valuations after equities extended a five-week high. U.S. index futures also fell.
Banks slipped as U.S., Swiss, and British regulators fined lenders including HSBC Holdings Plc, Royal Bank of Scotland Group Plc and UBS AG to settle a probe into foreign-exchange manipulation. Barclays Plc slid 2 percent after saying it is not ready to settle the probe. Enel SpA lost 4.4 percent after third-quarter profit fell more than analysts had predicted. SBM Offshore NV surged 17 percent after settling a case of alleged improper payments to sales agents.
The Stoxx Europe 600 Index retreated 0.8 percent to 336.4 at 11:46 a.m. in London. The measure had rebounded 9.3 percent from this year’s low on Oct. 16 through yesterday as the Bank of Japan unexpectedly boosted its stimulus and
companies from Vodafone Group Plc to Carlsberg A/S reported better-than-estimated financial results.
“Maybe we’ve gone a bit too far since October,” Dirk Thiels, head of investment management at KBC Asset Management NV, said by phone from Brussels. “There’s still a bit of caution because the earnings are not that convincing, so many investors will be evaluating valuations.”
Europe’s equity gauge trades at about 15.3 times the projected earnings of its members, up from a multiple of 14 times last month. Standard & Poor’s 500 Index futures dropped 0.3 percent today after U.S. equities closed at a fifth straight record.

Loss Protection

While Europe’s VStoxx Index dropped 42 percent since surging to a high in October through yesterday, it remains above its 12-month average. Based on implied volatility, the key gauge of options prices, buying protection against losses in euro-area stocks was 19 percent more expensive than for the S&P 500 on Nov. 7, the biggest gap in 15 months.
A gauge of Stoxx 600 lenders posted the second-biggest decline of the 19 industry groups on the broader index. UBS was ordered to pay $800 million, RBS paid $634 million and HSBC $618 million, according to statements from the U.S. Commodity Futures Trading Commission, Britain’s Financial Conduct Authority and the Swiss Financial Market Supervisory Authority.
“There are a lot of unknowns for banks,” Thiels said. “Further litigation, provisions and regulation will surface in the next months or years and that will really push down profitability for the banking sector.”

Banks Fall

Barclays fell 2 percent to 229.9 pence. The British lender said it’s not ready to reach an agreement with regulators related to the currency-rigging investigation.
Italian and Greek banks lost the most. Banco Popolare SC slid 3.5 percent to 9.94 euros after posting a wider-than-projected third-quarter loss. UniCredit SpA fell 3.1 percent, Piraeus Bank SA retreated 2.8 percent, and Banca Popolare di Milano Scrl dropped 4.3 percent.
Enel slipped 4.4 percent to 3.76 euros after Italy’s largest utility said adjusted net income dropped to 298 million euros ($372 million) in the third quarter. That missed the 320.4 million-euro average estimate of analysts in a Bloomberg survey. Profit was hurt by lower demand for electricity, weakness in its Iberian and Latin American markets and the strength of the euro.
SSE Plc retreated 2.7 percent to 1,538 pence. Annual profit will be little changed from the prior year, or at the lower end of its forecast, because of low production and consumption of energy, the British utility said.
SBM Offshore jumped 17 percent to 12.50 euros. The Dutch supplier of floating oil production platforms will pay $240 million to the nation’s prosecution office. The settlement relates to payments to sales agents in Equatorial Guinea, Angola and Brazil between 2007 and 2011.