FRANKFURT: European stocks had their first decline in six weeks after earnings from Ericsson and Royal Philips Electronics missed analysts' estimates, heightening concern that profit growth in the region is slowing.
Ericsson fell to the lowest in more than three years and Philips had the steepest weekly loss since September 2003. Barclays and Deutsche Bank led bank shares lower after Bank of America Corp and Wachovia Corp in the US said loan losses eroded profits.
“Earnings are more likely to surprise on the downside than on the upside,” said Jonathan Monk, a fund manager at Aerion Fund Management in London, which oversees $23bn. “A lot of people got too bullish, thinking the worst is behind us, and they ran into a set of disappointing earnings.”
The Dow Jones Stoxx 600 Index lost 2.5% to 380.88, snapping the longest streak of weekly gains since October 2006. The measure had rallied 11% since reaching a five-month low August 16 on speculation profit growth and takeovers would overcome rising debt defaults and a US housing recession.
“The market turmoil has partially eased from August, but not completely, and this is clear from the earnings reported by US banks,” said Mario Spreafico, who helps oversee the equivalent of $4.3bn as chief investment officer at Citigroup Global Markets in Milan. “It’s hard to fully quantify the impact of the credit crunch on the economy in coming months.”
The average earnings growth estimate for Stoxx 600 companies this year fell to 9.56% from 10.68% six weeks ago, according to data compiled by Bloomberg.
Crude oil breached $90 a barrel in New York for the first time as the dollar traded near a record low against the euro. National benchmarks dropped in all 18 western European markets, except in Spain.
The UK’s FTSE 100 tumbled 3%, while Germany’s DAX Index decreased 2%. France’s CAC 40 Index fell 1.8%. The Stoxx 50 lost 2.9% and the Euro Stoxx 50, a measure for the euro region, slid 1.5%.
Bank of America, the second-largest US bank, said on Thursday that about $4bn in trading losses, defaults and writedowns caused third-quarter profit to drop 32%, more than analysts estimated. One day later, Wachovia reported its first earnings decline in six years after a record $1.3bn of writedowns for bad loans and mortgage-backed securities.
“There are negative surprises in the US again and again,” said Guenther Gerstenberger, a fund manager at Oberursel, Germany-based PEH Wertpapier, which oversees the equivalent of $5.5bn. “|Bank of America was a shocker. Markets might come back a bit in the coming weeks.”
Ericsson sank 29%. Chief executive officer Carl Henric Svanberg said reduced demand for network upgrades in North America and Europe hurt margins and fourth-quarter revenue may decline.
Svanberg, who told investors on September 11 that industry growth was “strong,” said on Tuesday he was “humble, concerned and disappointed.”
Philips, the region’s largest maker of consumer electronics, fell 8.8% after third-quarter profit dropped and the company cut its sales forecast for the medical division.
A measure tracking bank stocks sank 4%, the biggest weekly loss in three months. Barclays, the UK’s third-largest bank, retreated 9%. Deutsche Bank, Germany’s biggest, decreased 4.5%.
“I wouldn’t bet on banks, particularly not those involved in investment banking,” said Sergi Martin Amoros, who helps oversee the equivalent of $10bn at Credit Andorra in Andorra. “Bad news is still to come.”
UniCredit, Italy’s biggest bank, dropped 6.5%. Italy’s banking association cut its growth forecast for gross operating profit at the nation’s banks this year to 12% from 14.4% on Wednesday as higher borrowing costs weigh on consumer spending and corporate investment.
SAP AG retreated 4%. The biggest maker of business-management software said third-quarter profit increased 10%, less than half the pace of US rival Oracle Corp, as revenue in the Americas trailed analysts’ estimates. Roche Holding AG lost 6%, the most in more than a year. The world’s biggest maker of cancer medicines reported third-quarter revenue that fell short of analysts’ projections. Revenue from Tamiflu, one of only two medicines that may help prevent an avian flu pandemic, has peaked because countries have purchased enough supply for an outbreak, Roche said on Tuesday.
Scottish & Newcastle soared 19%, the steepest gain in the Stoxx 600, after Carlsberg A/S and Heineken NV said on Wednesday they are considering a bid for the UK’s largest brewer. Scottish & Newcastle has called the approach “unwelcome.”
Northern Rock, the UK mortgage lender bailed out by the Bank of England, plummeted 32%, the biggest loss in the Stoxx 600. Credit Suisse Group said there was “significant downside risk” following a bid approach from a team led by Virgin Group. The approach may remove the possibility of shareholders getting zero pence a share, analysts led by Jonathan Pierce in London wrote in a report to clients. Still, “the problem is the potential dilution,” they said. – Bloomberg |
