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FT.com site: European bourses close at multi-year lows

By Philip Stafford, FT Investor, FT.com site
Published: Jul 15, 2002

European markets tumbled to fresh five year lows by the close on Monday, with weakness in banks and oil stocks leading a decline which went deeper than the sharp falls also unfolding on Wall Street.

The pan-European FTSE Eurotop 100 was 5.8 per cent lower at 2,067.93 hitting fresh five-year lows. Markets weakened at the same time the dollar weakened against the euro, with the two currencies reaching parity for the first time in two years.

London’s FTSE 100 was down 5.4 per cent at 3,994.5 to its lowest point since December 1996. In Frankfurt, the Xetra Dax 30 fell 4.6 per cent to 3,939, its lowest close since December 1997. The Paris CAC 40 index erased earlier gains to stand down 5.2 per cent at 3,329.49.

On the new markets, the FTSE Techmark declined 4.4 per cent to 750.2 and the Nemax in Frankfurt was down 3.5 per cent at 512.66.

The dollar also hit parity with the euro, trading at €1.0069, driven in part by the same disillusionment with US equities which drove the sharp fall in global markets.

The selling was indiscriminate as every stock, bar two, on the three main indices ended lower. The lucky gainers were the German drugmaker Schering, up 1.6 per cent and BSkyB, up 0.4 per cent.

European exporters, whose output may now be assumed to be less competitive after the euro’s rise, were all lower. Carmakers BMW and Volkswagen were down 5.2 per cent and 5.7 per cent at €39.09 and €40 respectively. Chipmaker Infineon was down 1.2 per cent at €16.31.

US markets also turned weaker, with the Dow Jones Industrial Average down 3.1 per cent as most European markets were closing. The Nasdaq Composite was trading 1.5 per cent lower.

Hope in drugs fades

News of consolidation in the drugs sector bought little relief after Pfizer said it would buy Pharmacia in an all-stock deal valued at $60bn.

Investors will be hoping the deal will spark further consolidation in a sector under pressure from generic competition and a shortfall of new drugs coming onto the market this year. The deal will also make Pfizer the largest pharmaceutical company in Europe. Pharmacia shares were suspended on the Stockholm bourse.

“There’s a little bit of speculation that this will start another round of global consolidation and that investment bankers will be sharpening their pencils,” said Peter Cartwright, pharmaceutical analyst at Williams de Broe. “There is some evidence that the drug industry is following the model of market leaders becoming primarily marketing companies with many new products coming in the form of licensing agreements.”

The only stock to benefit, however was Schering which rose 1.6 per cent to €52.50.

Sanofi-Synthelabo lost 4.6 per cent to €53.25. And in London GlaxoSmithKline fell 4.1 per cent while AstraZeneca shed 5.5 per cent.

Banking stocks were weaker as investors continued to fret how the 6-week tumble in equity markets would affect 2002 earnings.

“Halfway through the year there are still scant signs of a recovery. Fixed income remains buoyant, but M&A and equities markets are still both weak. With volumes poor, market values falling and underlying margins still declining, it is difficult to see how revenues will pick up,” said analysts at Lehman Brothers.

Credit Suisse fell another 7.9 per cent at SFr37.15 while Societe Generale fell 5.8 per cent to €54.10. Commerzbank fell 5 per cent to €13.16.

Oil major Shell slid 8.1 per cent after The Financial Times reported concerns over the accounting treatment of its energy trading derivatives. George Naumur, a former general manager at Shell’s Houston operation alleges that he was told to come up with optimistic forecasts of future power and gas prices that would justify the derivatives deals. Shell insisted that the accounting treatment of the deals was “conservative”.

BP fell 8.5 per cent, while Royal Dutch was down 8.5 per cent to €45.58.

Deutsche Telekom fell 14.1 per cent to €10.43 after reports said the German government had put forward Gerd Tenzer, head of the company’s engineering group, as its preferred candidate to replace chief executive Ron Sommer. However, it said Mr Tenzer may struggle to win the majority backing of the board and may only serve as a caretaker chief executive. The company’s supervisory board meets on Tuesday to discuss Mr Sommer’s position.

Vivendi Universal was down 11.7 per cent to €15.15 after press reports that Guillaume Hannezo may quit as chief financial officer because of the revelations in early July that the company’s liquidity position was worse than thought.

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