Investor alarm over Spanish banks

STOCKS FELL yesterday as the European Central Bank (ECB) halted lending to some Greek financial institutions and fears of a run on Spain’s Bankia sparked a further bout of nerves among investors.

Benchmark indices in Europe all tumbled, including London, Paris and Frankfurt. Greece’s ASE fell to its lowest level since January 1990. Many northern European markets were spared as they were closed for a holiday.

The ECB said it would temporarily stop lending to some Greek banks to limit its risk. However, its president, Mario Draghi, indicated the bank would not compromise on key principles to keep Greece in the euro area.

Andreas Lipkow, an equity trader at MWB Fairtrade Wertpapierhandelsbank AG in Frankfurt, warned that if Greece were to fall, nobody knew what would happen to Italy, Portugal and Spain. “Then it doesn’t really matter if the Fed pumps more money into the market and tries to push up the US economy, because the trouble in Europe will overshadow everything,” he added.

Spain denied newspaper reports that lender Bankia has lost €1 billion in deposits since May 9th, when the government said it would take it over. This, combined with ratings agency Moody’s decision to downgrade four Spanish regions, sparked a dramatic fall in Bankia’s share price, which was down 28 per cent at one point.

DUBLIN

The Irish market followed Europe, with most leading stocks shedding value. However, there were individual factors involved in at least some of yesterday’s changes.

Ryanair finished 5.15 per cent off at €4.166 after a number of investors cashed in gains made earlier in the week and decided to sell ahead of its results announcement on Monday.

The Iseq’s biggest stock, building materials giant CRH, shed 2.4 per cent to close at €13.445. The fall came after it emerged late on Wednesday a US hedge fund has shorted one of CRH’s peers, Martin Marietta.

Bookmaker Paddy Power, which produced an upbeat trading statement ahead of its annual general meeting yesterday, rose 2.46 per cent to €48.50.

Readymix will delist from the Dublin market today after the failure of a legal challenge to Cemex’s successful offer for the outstanding stock in the company that it does not own.

EUROPE

THE STOXX Europe 600 Index, which measures leading shares in 18 European markets, dropped 1.1 per cent to 241.63 at the close of trading, for the longest losing streak since March 22nd.

The gauge has retreated to the lowest level since December 28th on mounting concern that Greece will leave the euro area.

Investors’ fears focused on Spanish banks. Spanish lender Bankia tumbled 14 per cent to €1.42. The stock has dropped for 10 consecutive days, losing 42 per cent. El Mundo reported that customers have withdrawn €1 billion since May 9th.

Bankinter SA fell 4.4 per cent to €2.96, declining for a fifth day. Banco Popular Espanol SA retreated 4.6 per cent to €1.91.

Banco Espirito Santo SA dropped 9.4 per cent to 48.2 cent, the lowest since at least April 1993. Banking shares were the second-worst performer of the 19 industry groups in the Stoxx 600.

TNT Express NV fell 3 per cent to €8.72, its lowest price in three months. PostNL NV, which owns a 30 per cent stake in TNT, dropped 6.2 per cent to €2.73.

LONDON

BRITAIN’S TOP share index, the FTSE 100, closed below 5,400 for the first time this year as jitters over turmoil in the euro zone dominated the market backdrop. Once again, the banks acted as a major drag on its performance.

Airlines group IAG was the biggest UK blue chip faller, down 6 per cent to 143.5 pence, as investors worried about its exposure to Spain. It bought Iberia last year.

Vedanta Resources plc, an aluminium and copper producer in India, declined 4 per cent to 985 pence, a four-month low, after the company said full-year profits were down 92 per cent.

Investec slipped 3.4 per cent to 317.5 pence. The owner of a bank and money manager in South Africa and the UK said full-year profit fell 41 per cent after costs rose and trading income slumped.

Aviva plc slid 4.7 per cent to 267.7 pence after the UK’s second-biggest insurer by market value reported a 7 per cent decline in first-quarter sales of life insurance and pensions to £6.52 billion.

US

MEMBERS OF the Federal Open Market Committee said new action may be necessary if the economy loses momentum or “downside risks to the forecast became great enough”. Labour department figures showed new claims for unemployment insurance were unchanged at 370,000 in the week ended May 12th.

A separate report showed manufacturing in the Philadelphia region unexpectedly shrank in May for the first time in eight months, reflecting a drop in orders and employment. – (Additional reporting: Reuters/Bloomberg)