By Amanda Cooper
LONDON, June 2 (Reuters) - European shares fell on Monday,
driven by the banking sector after British mortgage lender
Bradford & Bingley <BB.L> reignited fears about the impact of
the credit crunch on the broader economy.
Shares in B&B, Britain's largest buy-to-let lender, sank
nearly 25 percent after it said it had replaced its chief
executive and slashed the price of its emergency fundraising to
secure a private-equity lifeline.
The company's warning about the state of the UK mortgage
market, the starkest yet from a British lender, coincided with
the release of data showing approval for new home loans fell to
a record low in April.
Despite B&B's status as a midcap company, it sent shivers
through global banking stocks, where a degree of optimism had
started to build as banks have strived to purge their balance
sheets of as many subprime-related assets as possible and some
institutions have announced measures to shore up their capital
position.
Banks were the worst performers of the day. Spain's Banco
Santander <SAN.MC> lost 2.2 percent, while B&B rival HBOS
<HBOS.L> fell 10 percent and BNP Paribas <BNPP.PA> fell 2
percent.
In the U.S., shares in Wachovia Corp <WB.N>, the fourth-
largest U.S. bank, fell 3 percent after the company ousted its
chief executive against a backdrop of mounting losses.
The FTSEurofirst 300 index <> of top European shares
fell 1.1 percent to close at 1,319.13 points.
"It's been maybe a bit of a wake-up call that the financial
problems are not just all down to the U.S. subprime market and
we can't insulate ourselves from that. It's been a bit of a slap
around the face for investors," said IG Index chief markets
strategist David Jones.
"The fallout in the property markets, the aggressive lending
worldwide, is all coming home to roost now ... Maybe Bradford &
Bingley is just the tip of the iceberg."
BANKS KEEP LAGGING
The DJStoxx of European banks <.SX7P> fell 1.9 percent.
"The banks were the weakest sector in May and the sell-off
continues now, which shows that the market expects further
negative news," said Andreas Huerkamp at Commerzbank.
"It may well be that the writedowns are behind us, but now
we can see that it is affecting the operating business."
In May, the banking index lost nearly 8 percent and has shed
some 22 percent so far this year, compared with a 12 percent
fall in the FTSEurofirst 300.
Oil and gas stocks fell on Monday as crude oil prices
remained below their recent record highs <CLc1>. BP <BP.L>,
Total <TOTF.PA> and Royal Dutch Shell <RDSa.AS> fell between 0.6
and 1.8 percent. BG Group <BG.L> lost 2 percent and Repsol YPF
<REP.MC> fell 2.3 percent.
Auto stocks also fell out of favour, leaving the DJStoxx
index of European autos <.SXAP> down 2.3 percent.
Suppliers Michelin <MICP.PA> and Continental <CONG.DE> fell
more than 4.6 percent following a note from Credit Suisse, which
cut its estimates for Michelin by 6 to 20 percent and removed
Continental from its "focus list" due to high oil prices.
Italian car maker Fiat <FIA.MI> fell 3.5 percent after Chief
Executive Sergio Marchionne said on Sunday new car sales in
Italy fell almost 20 percent last month.
Germany's DAX <> eased 1.2 percent and Britain's FTSE
100 <> fell 0.8 percent, while France's CAC-40 <> shed
1.6 percent.
Pharmaceutical sectors were among the few to eke out a gain.
Switzerland's Roche <ROG.VX> gained 4.6 percent after the
publication of encouraging research results on its Avastin drug
and bullish broker comments which suggest that rival Merck
KGaA's <MRCG.DE> drug Erbitux is less of a threat than initially
feared. Merck shares fell 2.8 percent.
Novartis <NOVN.VX> rose 2.3 percent.
Consolidation hopes boosted solar energy stocks after Robert
Bosch GmbH [] made a 101 euros-a-share bid for
TecDAX-listed Ersol <ES6G.DE>, which shot up 63 percent.
"We see this as the boldest move so far in what we see as
the start of a consolidation process in the solar industry," a
trader at Sal Oppenheim said in a note.
"In particular, we see companies from mature industries such
as the automotive or the semiconductor industry bringing process
know-how to the solar industry. This should create interest in
companies such as Solon, but also Centrosolar or Aleo."
Shares in Solon <SOOG.DE> were up 14.6 percent.
(Additional reporting by Patrizia Kokot; Editing by Erica
Billingham)
