Reply #20: European shares fall 1.5%, UBS leads banks lower [View All]

[Ghost Dog]

Thu Jan 31, 2008 7:24am EST
LONDON, Jan 31 (Reuters) - Banks led European shares lower by midday as investors worried about more losses in the sector but takeover talk boosted Societe Generale (SOGN.PA: Quote, Profile, Research).

At 1200 GMT, the FTSEurofirst 300 index of top European shares was down 1.5 percent at 1,309.03 points, taking its losses for the month to nearly 13 percent, its worst monthly fall since September 2002.

UBS (UBSN.VX: Quote, Profile, Research), which unveiled $4 billion in new write-downs on Wednesday, tumbled 8.6 percent, its biggest one-day fall in more than nine years.

The director of the Swiss Federal Banking Commission said in a newspaper interview UBS faced further writedowns as long as the credit crisis continued.

Deutsche Bank (DBKGn.DE: Quote, Profile, Research) fell 3.6 percent on market talk of a profit warning. The bank declined to comment.

HSBC (HSBA.L: Quote, Profile, Research) lost 2.5 percent, UniCredit (CRDI.MI: Quote, Profile, Research) shed 3 percent and Royal Bank of Scotland (RBS.L: Quote, Profile, Research) fell 4.5 percent.

But Societe Generale (SocGen), which disclosed a rogue trader scandal last week, gained 3.4 percent after BNP Paribas (BNPP.PA: Quote, Profile, Research) said that it was studying a possible bid for the stricken group.

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The FTSEurofirst 300 is now off 20.1 percent from a multi-year peak hit in July last year. Many analysts consider a fall of 20 percent from such a peak as signalling a bear market.

A 50-basis-point cut from the Fed on Wednesday, even coming on top of an emergency 75-basis-point cut the previous week, did little to boost equities.

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Rating agency Fitch downgraded bond insurer FGIC Corp's bond insurance arm and media speculation swirled that other rating agencies may follow suit and cut the AAA ratings of the top two U.S. insurers Ambac Financial Group (ABK.N: Quote, Profile, Research) and MBIA Inc. (MBI.N: Quote, Profile, Research).

MBIA, the world's largest bond insurer, which reported a quarterly loss on Thursday after a $3.5 billion write-down, fell nearly 13 percent in New York on Wednesday, while Ambac shares tumbled 17 percent.

Standard & Poor's said it cut or may cut hundreds of billions of dollars of U.S. mortgage-backed securities and collateralised debt obligations.

Monoline insurers underwrite securitised debt products, effectively transferring the triple-A credit ratings the insurers enjoy to the repackaged debt securities that typically comprise tranches of risk well below the very highest grade.

If the insurers lose their top ratings, so do the bonds they have underwritten, forcing many investors to sell their holdings, forcing massive write-downs for investors in the repackaged bonds.

"If they're downgraded it makes it very difficult for them to do their job, and this is significant for U.S. financial markets and the Fed," said Dowds.

/... http://www.reuters.com/article/marketsNews/idCAL3189561120080131?rpc=611