Europe’s benchmark struggled this week, led downwards by French banks before a ban on short selling helped shares to rise again. French banks fell sharply midweek amid fears of a French downgrade, dragging down European shares. Société Générale plunged, hitting a 2½-year low and dropping 13.7 per cent over the week to €23.66. Other French banks also tumbled, with BNP Paribas falling 10.2 per cent to €35.45 and Crédit Agricole dropping 9.8 per cent to €6.46. A SocGen spokeswoman denied rumours related to the bank’s financial solidity, helping the shares off their lowest point.
The CAC 40 index fell by 2 per cent to 3,213.88 over the week. “This will continue to be a very painful process to watch play out. In the end, core Europe will ‘write the cheque’ and holders of peripheral European sovereign bonds will likely have to take a ‘haircut’,” said Erik Ristuben, chief investment officer at Russell Investments. Over the week, the benchmark Eurofirst 300 lost 0.7 per cent to 968.21.
On Friday a ban on short selling in France, Italy, Spain and Belgium moved indices higher and caused European banks to recover some of their losses. Regulators said they had put the ban in place in an effort to “restrict the benefits that can be achieved by spreading false rumours”. Belgian bank Dexia surged on Friday, recovering weekly losses and ending the week up 9.8 per cent at €1.77. Italian banks also managed a modest rally on Friday, but lost ground over the week; UniCredit fell 2.8 per cent to €1.03 and Intesa Sanpaolo dropped 6.2 per cent to €1.22.
Meanwhile, shares in German power producer RWE fell 16.6 per cent to €28.75 after it reported first-half net profits that were hit by a government decision to phase out nuclear power and unprofitable gas sales.
Germany shut eight nuclear power plants following Japan’s nuclear disaster. The government also decided to phase out nuclear power completely by 2022, overturning legislation that had extended the lifespan of 17 plants. German utility Eon also fell, its shares dropping 16 per cent to €14.50. Other companies suffered across the board. Swiss recruitment consultant Adecco slumped 9.1 per cent to €36.82, as the company said it would focus on cost control despite a higher than expected second-quarter net income.
“I think this is more about what’s implicit in Adecco’s statement than what they actually said,” Teun Teeuwisse at ABN Amro said. “It focused a lot on costs and, in my view, that indicates that the outlook is not so strong.”Shares in Danish enzymes producer Novozymes also extended losses, trading down 5.9 per cent to DKr720.50 after the company posted second-quarter sales and earnings below consensus estimates.