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Sharp stock falls mar European trading as HSBC, Banco BPM disappoint

Stock MarketsAug 06, 2018 09:44
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© Reuters. The German share price index, DAX board, is seen at the stock exchange in Frankfurt

By Helen Reid

LONDON (Reuters) - European shares floundered on Monday in cautious trading as Europe's biggest bank HSBC disappointed investors, while doubts over a planned $87 billion tie-up with Praxair sank shares in German industrial gases group Linde.

Falls in HSBC (L:HSBA) and Banco BPM (MI:BAMI) following their results dragged the banking sector (SX7P) down, while chemicals and industrials shares also weighed on the pan-European STOXX 600, down 0.1 percent by 0830 GMT.

HSBC shares fell 1.1 percent after it reported disappointing earnings due to rising expenses from investments in a new growth strategy and a $765 million provision against sale of U.S. mortgage securities.

"On revenues, we note on the positive side that loan growth continues to be very strong," Goldman Sachs (NYSE:GS) analysts said. "On the negative side, we note that the group has lowered its expected net interest income sensitivity to U.S.$ rates."

Banco BPM shares fell 8.6 percent after the Italian lender's earnings missed forecasts due to higher than expected loan loss provisions, and its capital buffer suffered due to sharp falls in Italian government bonds during May's political upheaval.

"CET1 (core equity tier 1) fell 67 basis points quarter-on-quarter to 10.83%, with the expected BTP headwind exacerbated by the lack of room to absorb additional DTAs (deferred tax assets) and reduced thresholds," said UBS analysts.

Overall Europe's banks have performed quite well in the second-quarter earnings season, with stronger than expected earnings growth and profitability.

M&A disappointments hit some shares hard.

Linde (DE:LIN1) sank 9.1 percent to a 3-1/2 month low after it said regulators may ask it and its U.S. rival Praxair to sell more assets in order to get antitrust approval for their merger.

"The probability for the merger has decreased," said Baader Helvea analysts, adding however they still believe it will close successfully.

The heavyweight stock dragged Germany's DAX down to underperform peers, declining 0.2 percent. Linde also pulled the chemicals sector index (SX4P) down 1.3 percent.

Germany also suffered the biggest drop in industrial orders in 1-1/2 years, driving industrial giants Siemens (DE:SIEGn) and Thyssenkrupp (DE:TKAG) down 0.8 to 0.9 percent.

British serviced offices group IWG (L:IWG) also suffered from M&A pain, sinking 21 percent to the bottom of the STOXX 600 after the firm ended takeover talks with private equity firms Terra Firma, TDR and Starwood.

Among gainers, Finnish refiner Neste (HE:NESTE) rose 4 percent, recovering from Friday's fall after results. Brokers Inderes and Kepler Cheuvreux raised their target prices on the stock.

A target price hike from Morgan Stanley (NYSE:MS) also boosted Galapagos (AS:GLPG) shares up 4.5 percent.

A downgrade to "hold" from HSBC analysts sent shares in German lighting group Osram Licht (DE:OSRn) down 4.4 percent. The broker cut estimates to reflect lower growth and margins at the firm's Opto and Specialty Lighting.

Overall second-quarter earnings for MSCI Europe firms are expected to grow 7.8 percent year-on-year in euro terms, while they're seen growing 2.5 percent year-on-year for MSCI EMU.

Europe remains an unpopular region for stocks investors, though some indicated the outflows could turn soon as companies deliver good results and analysts revise their earnings expectations up.

"European outflows already look excessive at -$36bn over the last 12 months," Citi strategists said.

Sharp stock falls mar European trading as HSBC, Banco BPM disappoint

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