Preview from Europe: Equities Endure Another Bumpy Month's End

There simply is no respite for long suffering stocks as fears of nationalisation creep closer. The seemingly endless need to drip-feed financials more and more public money (Citibank (C) and AIG) and news of slashed dividends at GE (and pared payouts elsewhere) was just too much for the market to take. The Dow Jones finished a horrible week at only 7063. Sorry but it looks like another tough week is in store.

Today’s Market Moving Stories

• House prices in the UK fall 0.8% in Feb (down 10% year on year) according to Hometrack. The number of house completions is also down 60% year on year while non-conforming mortgages hit record delinquency levels of 28.6% of all such loans outstanding.
• Merkel says no. A fractious EU summit has rejected calls (from Hungary) for €180bn aid programme / bailout to recapitalise banks and reschedule foreign currency debt of Central and eastern European countries. EUR/USD has pushed below 1.25 in response. Think globally, act locally!
• US “insurance” black hole AIG is set to unveil a $60bn loss forcing it to get its begging bowl for yet another $30bn lifeline from the sucker taxpayer. TARPed and feathered indeed.
• HSBC (HBC) has announced a record rights issue of £12.5bn (5m new shares at 254p) and a 30% dividend cut. They are also to exit all new business in US consumer banking. European banking stocks in general are unsurprisingly under pressure this morning on this bombshell. HSBC is off 7% while the likes of Deutsche (DB), UBS and BNP (BNPQY.PK) are also struggling.
• Staying with the banks, Allied Irish Bank (AIB) full year net income, following an unsurprising profit warning on 19th Feb, came in positive at €767m. This is down 61% year on year but in line with the guided EPS of 66c. Results include loan loss provisions of €1.8bn (vs €106m in 07) and €106m gain on disposal of merchant business. As guided, core Tier 1 is low at 5.8% and Tier 1 at 7.4% but following government recap €3.5bn, these will be 8.4% and 10% respectively. Final dividend has been scrapped.
• Berkshire Hathaway (BRK.A) reports its worst annual performance on record. Buffett says the economy is a “shambles”.
• Stocks bucking gravity today are Dutch grocer Ahold (AHO), who beat estimates handily and French media giant Vivendi (VIVEF.PK), who are even increasing their dividend. Kingspan (KGSPF.PK) released results which were slightly ahead of expectations.
• Meanwhile Davy’s stockbrokers have further downgraded their economic outlook for Ireland in 2010 to a 4.4% drop in GNP (previously –0.5%) due to the alarmingly rapid deterioration in the labour market.
• Maybe Rick Santelli’s rant was not as off the cuff as it first appeared? This is one instance where we did read the articles and interviews!
• So we’ve all heard the phrase “re-owned” as the Americanism for “second hand” but over the weekend I heard one pundit speak of “nationalisation” of the banking system as “preprivatisation”!
• While Ryanair (RYAAY) may soon charge you for them, bankers seem to always get golden parachutes.

Data Today

There is a plethora of manufacturing PMI data scheduled for release today including data from the Eurozone (consensus 33.6), UK (35) and the US (34). The collapse in global trade has dealt a severe blow to this beleaguered sector which has already been suffering from the drop in domestic demand. Today’s releases will reveal across the board weakness as manufacturing continues to contract. The only good news is that such bad news should not come as a surprise any more. Nonetheless, it will only add to the evidence pointing to an extremely severe recession globally, one that is being led by the developed economies but quickly spreading into the emerging markets.

Thursday will bring rates cuts from the Bank of England’s MPC (0.50%) and the ECB (between 0.50% - 1%). It will be back to the bunker with the hard hat on as we brace ourselves for another blowout monthly jobless number for the US on Friday.

Disclosures: None

Comments

[Mad Hedge F...:]

Uh Yt b While American banks have their subprime crisis, European banks are being dragged under by their lending to emerging economies in Eastern Europe. Ledd by UniCredit in Italy, Austria’s Erste Group Bank and Raiffeisen International, France’s Societe Generale, Belgium’s KBC, and Hungary’s OTP, banks have lent $1.6 trillion to companies in these formerly communist countries at cheap rates, with minimal documentation, and few questions asked. The easily available credit caused local money supplies to explode, and sparked bull markets in both stocks and currencies. Emerging Europe grew at rates double and triple rates in the West, as local companies pumped up on steroids became the master of leverage. Now $400-$600 billion is due for rollovers this year from nonexistent credit markets, and the chickens….make that vultures have come home to roost. Economic growth has fallen off a cliff, with Poland’s seasonally adjusted industrial output down in December a precipitous 7.4% YOY. The Polish stock market fell 48% last year, and the zloty of off 40% again the dollar from its June peak. The Central European Equity Fund (CEE) has crashed 80% in eight months. The crisis is so severe, it may postpone Poland’s entry into the Euro block, which had been scheduled for 2011. Home mortgage borrowers are in especially bad shape. Up to 50% of their loans were denominated in Swiss francs, so the collapsing Polish currency has caused a near doubling of borrowers’ monthly payments and principals since last year. Austria really has its knickers in a twist, as these heavily syndicated loans account for 80% of GDP. A 10% default rate could wipe out the entire banking system there. Germany has the smallest loan exposure, but has the most to lose, with 25% of its exports headed east. It is now in negotiation with its partners in the EC to cobble together a bailout with the help of the IMF to provide bridge financing for these loans, and hopefully ward off a further economic collapse. It looks like the headlines in Europe are about to get uncharacteristically sensational.

Mar 02 09:13 AM

[Lilliana:]

Is there no end in sight to the carnage...?
The whole world is going bankrupt.

Answer..
Eliminate Capital gains tax.
Banks ..Estimate holding at actual value and not maeket to market.

Mar 09 06:09 PM