By Blaise Robinson
PARIS, Jan 30 (Reuters) - European equities fell early on
Wednesday as banking shares dropped after UBS <UBSN.VX> posted
an additional $4 billion in write-downs, while investors turned
cautious ahead of a U.S. interest rate decision.
Shares in UBS lost 0.7 percent after the Swiss bank posted a
$11.5 billion loss for the last three months of 2007. Its
additional $4 billion in write-downs lifted the total cost of
its exposure to the U.S. subprime mortgage debacle to $18.4
billion.
At 0949 GMT, the FTSEurofirst 300 <> index of top
European shares was down 0.9 percent at 1,326.03 points. The
index has lost 12 percent so far in 2008, hit by worries over
the prospect of a U.S. recession and fears of more
mortgage-related write-downs in the financial sector.
"2007 has been a horrible year for the banks and the sector
is not out of the woods yet. Currently, banks are trading at a
price to book ratio of 1.4, and the historical average has been
1.1 to 1.2," said Franz Wenzel, strategist at AXA Investment
Managers, in Paris.
The price to book ratio is used to compare a stock's market
value with its book value.
"The fourth-quarter reporting season will be a real acid
test for the banks. Most of them will try to put all the
write-downs in their 2007 results as they want to clean the
balance sheet going forward."
Other banks retreated, with both HSBC <HSBA.L> and Barclays
<BARC.L> down 0.9 percent, and Deutsche Bank <DBKGn.DE> down 0.5
percent.
BNP Paribas <BNPP.PA>, which said before the market open it
expected fourth quarter profits to be lower than a year earlier,
was down 1.3 percent.
The DJ Stoxx bank index <.SX7P>, down 0.9 percent on
Wednesday, has lost 32 percent since touching an all-time high
last spring, hit by concerns over the banks' exposure to the
troubled U.S. subprime mortgage market.
On Tuesday, the FBI said it is investigating 14 corporations
over possible accounting fraud and insider trading violations in
a crackdown on subprime lending.
On the macro front, investors were bracing for the U.S.
Federal Reserve's interest rate decision, expected later in the
day. A total of 18 out of 20 primary dealers polled by Reuters
forecast the Fed would cut benchmark rates, with 14 expecting a
half-point reduction.
The Fed slashed rates by 75 basis points last week in an
emergency move aimed at shielding the economy from a recession
and calming financial markets turbulence.
"We look for the Fed to cut 50bp but, at the same time, we
think that its accompanying statement could see the Fed somewhat
cool to the idea of another rate cut at the March meeting," Bear
Stearns analysts wrote in a note.
"The problem, though, is that this might be a negative one
for stocks if the market senses from the statement that the Fed
might not follow up with another cut in March."
Around Europe, Germany's DAX index <> was down 0.4
percent, UK's FTSE 100 index <> down 0.6 percent and
France's CAC 40 <> down 1.2 percent.
Shares in Rio Tinto <RIO.L> were up 1.9 percent as traders
cited market talk that the miner was opening up its books to
suitor BHP Billiton <BLT.L>. Rio said it had nothing to
disclose.
Earlier, Australian newspapers reported that Rio's financial
advisers had suggested that BHP Billiton could afford to raise
its offer by at least 42 percent to $157 billion.
Iberdrola <IBE.MC> surged 5.9 percent after a report in the
Financial Times saying that France's EDF <EDF.PA> and builder
ACS <ACS.MC> had held talks over a possible joint bid for the
power producer.
SAP <SAPG.DE> rose 3.1 percent after the software maker
reported detailed 2007 results and unveiled what traders
described as an upbeat outlook for 2008.
French oil services group Technip <TECF.PA> tumbled 7
percent after it said it would book charges worth a total of 270
million euros in its fourth-quarter earnings linked to problems
on three of the company's projects.
(Editing by David Cowell)
