Banks lead US and Europe stock plunge

AFP/New York/London

A man passes by a Societe Generale agency, in Dunkerque, northern France, yesterday. Societe Generale’s shares lost as much as 20.24% before recovering to stand down 14.7% at €22.2, hit by rumours of a French sovereign rating downgrade that swept markets

Stocks plunged at great speed in Europe and on Wall Street yesterday led by bank shares amid new concern over Greece, and talk of danger for France’s credit rating which was immediately denied. The slump of up to 6% in Europe and more than 4% on Wall Street, coupled with a record rise of gold, came only a day after markets soared on strong signals by the US Federal Reserve that it would hold ultra-low interest rates for another two years The stocks slump marked a sudden switch from a modest rally in early European trading on emergency action by the US and European central banks to fight the fires of debt and economic slowdown eating ever deeper into confidence. But sovereign debt worries amplified on a Fitch downgrade of Cyprus and comment that the eurozone nation would need external financial help. This came only days after the historic downgrade of the US credit rating by Standard & Poor’s. In foreign exchange deals, the dollar steadied against the euro, after having earlier slid on the Federal Reserve news. The European single currency dipped to $1.4191 from $1.4374 in New York late Tuesday. At closing, Frankfurt’s Dax dived 5.13% to 5,613.42 points and Paris’ CAC-40 plunged 5.45% to 3,002.99 points. London’s benchmark FTSE 100 index was down 3.05% to 5,007.16 points, also hit by news that the Bank of England has downgraded its 2011 British economic growth forecast. In the US, trading appeared to be driven again by momentum. For a fifth straight day, the Dow industrials shifted by more than 400 points from the session high to the day’s low.US financial stocks led the slide on worries that any French bank problems could spread to them. The KBW index of US bank stocks slid 4.9%. Bank of America Corp was down 6.6% at $7.10.In midday trading, the Dow Jones Industrial Average fell 3.22% after losing more than 4% earlier, the broader S&P 500 index was down 3.2% and the Nasdaq dropped 2.59%. In other European markets, Madrid tumbled 5.49%, Milan fell 6.65%, Amsterdam slid 3.41%, and Zurich dropped 4.12%. Shortly before Wall Street open-ed, banking stocks turned the European rally into a rout. “It was a crazy session. The banking sector hasn’t been hit this violently since 2008,” Renaud Murail, asset manager at Barclays Bourse in Paris said. Apparently sentiment was pushed by a mixture of factors: renewed concerns about Greece after the finance minister made comments on the eurozone rescue bond swap, concern about France’s credit rating and rumours France might increase taxes on banks. The French finance ministry categorically denied the rumour of a downgrade and Fitch rating agency said the outlook for France’s “AAA” was stable. The French president’s office said after a government meeting that within two weeks France would announce extra action to ensure that it meets tough targets on cutting its budget deficit. However, uncertainty centered on whether the new European Union rescue fund will be increased, and many analysts say that if it were, the burden would cost France its top rating. In Madrid, an analyst at IG markets, Soledad Pellon Bannatyne, said that Spanish bank shares had fallen in line with French bank shares which had dropped because of “their exposure to Greek debt”. She said: “French banks are being attacked so strongly that this has spread via falls throughout the European banking sector.” Societe General ended 14.7% lower after witnessing its biggest one-day percentage drop in more than two decades. Other French banks also saw a steep sell-off, with Credit Agricole down 11.8% and BNP Paribas down 9.5%. The European bank index fell 6.7%, the biggest one-day fall since March 2009.In London afternoon trading the price of shares in Standard Chartered bank was showing a loss of 6.34%, Barclays was down 6.3%, Royal Bank of Scotland was down 5.5% and HSBC was down by 4.11%. In Madrid, stocks in Santander bank were down 7.13% and BBVA was down by 6.35%.  Italy’s second-biggest lender, Intesa Sanpaolo, fell 13.72%. The plunges came a day after the head of the European Central Bank Jean-Claude Trichet made public in the bluntest terms that he had told Italy and Spain what they had to do in return for ECB support for the eurozone system. The US Federal Reserve then took action mainly at supporting the US economy and warding off the threat of a double dip recession by giving exceptionally revealing information that it expects it will keep interest rates at very low levels for about two years.