By Peter Starck
FRANKFURT, Feb 11 (Reuters) - European shares fell on
Monday, led by financials such as Societe Generale <SOGN.PA> and
Fortis <FOR.AS>, as credit spreads widened and investors fretted
about the impact of a credit crunch on growth and earnings.
In the United States, AIG <AIG.N>, the world's largest
insurer, disclosed that auditors had questioned the company's
internal controls over its valuation of derivatives.
AIG shares fell 11.5 percent, and a Wall Street insurance
index <.GSPINSE> was down more than 5 percent when Europe's
stock markets closed.
European credit derivatives index spreads <ITCRS5EA=GFI> hit
record highs, driven in part by worries over the structured
investment vehicle (SIV) sector and the problems at AIG.
"Spreads are widening again in credit markets, and that
means the market anticipates a very gloomy scenario," said
Romain Boscher, head of equity management at Groupama Asset
Management, in Paris.
The DJ Stoxx European insurance stocks' index <.SXIP> fell
2.7 percent, and the bank sector index <.SX7P> shed 2.1 percent.
The FTSEurofirst 300 <> index of top European shares
closed 0.9 percent lower at 1,290.9 points.
It dropped 3.7 percent last week on fears of a U.S.
recession and worries that financial institutions had not yet
revealed the full impact of the credit crisis on their books.
"The persistently high volatility is clear evidence of the
uncertainty many investors feel about (corporate) earnings and
growth prospects," Commerzbank said in an equity strategy note.
But some buy-side strategists said the worst might be over
in a couple of months.
Helmut Knestel, co-head of portfolio management at
independent wealth managers GECAM, said one positive sign was
that the across-the-board dumping of equities observed in
January -- driven, he said, by hedge funds and Societe Generale
-- appeared to be coming to an end.
"We expect that the technical selling triggered by big
investors faced with maturing credits will be over in one or two
months," Knestel said in a note.
SUMMER RECOVERY?
Ad van Tiggelen, senior strategist at ING Investment
Management, linked a possible equity market recovery to the
timing of the onset of a U.S. recession.
"Normally, corporate profits bottom out around 12 months
after the start of a recession. Markets tend to discount this
development about four to six months in advance. This means that
a recovery could set in this summer, while profits would sink to
their lowest level towards the start of 2009," he said in a
note.
Societe Generale, the French bank reeling from a massive
rogue trading scandal, fell 4 percent after it announced a
rights issue at a steep discount that analysts said would dilute
earnings more than expected.
"The size of the discount suggests that the challenging
market environment for banks has been taken into consideration,"
Barclays Wealth said in a note.
Volume in SocGen, at 9.24 million shares traded, was close
to double the daily average over the past 90 sessions, according
to Reuters data.
Bear Stearns reduced its 2008 earnings per share (EPS)
estimate for Societe Generale to 7.81 euros from 9.34 euros and
its 2009 EPS estimate to 8.30 euros from 9.89 euros, "to take
account of the new shares in issue and a more conservative
assessment of the prospects for investment banking revenues".
Elsewhere in the sector, Dutch-Belgian financial services
group Fortis <FOR.BR><FOR.AS> fell 3.9 percent, UK banks HBOS
<HBOS.L> and HSBC <HSBA.L> dropped 3.3 percent each, and Swiss
bank UBS <UBSN.VX> lost 3.1 percent.
Drugs maker GlaxoSmithKline <GSK.L> was the top blue-chip
gainer, with a rise of 1.3 percent, after UBS upgraded it to
"buy" from "neutral", saying the sell-off sparked by Glaxo's
disappointing 2008 guidance was overdone and a sum-of-the-parts
valuation implied that the pharma division was trading at a 30
percent discount to European rivals.
Other defensives such as telecoms operator France Telecom
<FTE.PA>, up 1 percent, and utility Suez <LYOE.PA>, up 0.7
percent, also found favour among risk-averse investors.
(Additional reporting by Amanda Cooper and Raissa Kasolowsky in
London and Blaise Robinson in Paris, editing by Will Waterman)
