European bank shares slide on Greek concern, Stark departure
European bank and insurance shares tumbled, sending Societe Generale SA to its lowest level since 1996, amid mounting concern that a Greek debt default will roil the region’s financial industry.
Societe Generale, France’s second-biggest lender, slid 8.2 percent to 17.91 euros in Paris. Credit Agricole SA, the nation’s third-largest, fell 6.5 percent to 5.48 euros. AXA SA and Allianz SE paced declines by insurers, shedding more than 4 percent apiece. Greek 10-year yields climbed to a record and their spread over German bunds surged to the most since the euro’s inception.
Stocks extended their declines as the European Central Bank said Executive Board member Juergen Stark will resign, suggesting policy makers are divided over how to stem the crisis, and German policy makers were said to prepare plans to shield banks if Greece defaults.
“Concerns on Greece’s rescue and dollar funding for banks have sent shares of some financials to historical lows,” said Maarten Altena, an Amsterdam-based analyst at ING Groep NV, “That means you’re back at square one or beyond, while a solution seems less obvious this time given the political deadlock in the euro zone.”
Credit-default swaps insuring Greek sovereign bonds jumped 212 basis points to a record 3,238, according to CMA, signaling a 92 percent probability the country won’t meet its debt commitments.
Greek Debt Swap
The 46-company Bloomberg Europe Banks and Financial Services Index fell 3.3 percent at 3:51 p.m. in London, paring two days of gains. The gauge is down about 6 percent this week.
Bondholders are weighing whether to participate in a debt exchange that’s crucial to the Greece’s second bailout. The country is seeking preliminary responses today from investors to the proposed swap, part of a 159 billion-euro ($218 billion) European Union rescue plan agreed upon in July.
Responses to the inquiry, which is not a formal offer, are nonbinding and will be aggregated by regulators on a country-by- country basis, according to the Greek government.
Costs to insure sovereign debt rose, with the Markit iTraxx SovX Western Europe Index of CDS’s on 15 governments increasing four basis points to 326.5. The Markit iTraxx Financial Index of swaps on 25 banks and insurers rose 11 basis points to 275 as of 12 p.m. in London, JPMorgan Chase & Co. said.
‘Mere Bystanders’
“Unlike in 2008-2009, when the crisis was centered on banks’ mark-to-market losses and rising credit costs, this time around banks are mere bystanders to events developing outside their control,” Jernej Omahen, London-based analyst at Goldman Sachs Group Inc. wrote in a note dated Sept. 8. “The solution to current banks’ problems is not within their operational domain, but rather in the domain of policy makers.”
Shares of insurers were hurt as yields of German, Dutch and Finnish government bonds, considered among the safest assets, all declined. German 10-year and two-year yields fell to all time lows after the ECB acknowledged the euro-region economic outlook has worsened.
Allianz, Europe’s biggest insurer by market capitalization, fell 4.8 percent to 62.71 euros in Frankfurt. Axa declined 6.5 percent to 9.51 euros in Paris.
Stark, the ECB’s 63-year-old chief economist, today “informed President Jean-Claude Trichet that, for personal reasons, he will resign from his position,” the Frankfurt-based central bank said in a statement.
He resigned after protesting the bank’s bond purchases on a conference call earlier this week, said a euro-area central bank official familiar with the meeting.
“Stark’s departure is not helping stocks either,” ING’s Altena said.