Concerns over exposure to eastern Europe and other developing markets weighed on banks in both the credit and stock markets on Tuesday after a report from Moody’s, the rating agency, which added to the growing consensus that such countries would suffer more in the global economic downturn.
Unicredit was the worst hit in morning trade. Its cost of protection jumped 33.55 basis points to 205bp, a new record, according to data from Markit Group, while its stock dropped 5.2 per cent to €1.14. Other banks such as Santander and BBVA of Spain, which were also down in the European stock market and were both about 10bp wider in the credit default swap market.
Credit was in worse shape generally, with the iTraxx Europe index of investment grade companies more than 5bp wider in morning trade at about 166bp, while the Crossover list of mostly junk-rated names was 17.6bp wider at 1110.1bp, not far off its record high of roughly 1120bp. This means it costs €1.1m annually to insure €10m worth of Crossover debt.
Daimler, maker of the exec’s favourite, Mercedes Benz, was the worst performer in credit markets after Unicredit following its posting of a much steeper loss than expected for the fourth quarter. The German group was 26.8bp wider at 278.8bp, while it shares also dropped.
The news weighed on its local high-end rival BMW, 20.9bp wider at 287.5bp, and on other European carmakers Renault, Peugoet, Volvo and VW.
Dutch insurer Aegon also widened sharply, adding 22.6bp to 235bp, after it also reported a worse than expected fourth quarter hit. The life insurer and investment firm alongside UK rival Legal and General also both warned that they expected to see higher defaults on corporate debt.
Swiss Re was also weighed down by the bad news, adding 25.2bp to 491.7bp ahead of its results Thursday, which are expected to see a SFr1.9bn net loss for the final quarter, according to an analysts poll by Reuters.
Another financial name still suffering was HBOS, 12.5bp wider at 172.75 bp, following the downgrade by Moody’s on Monday of the expanded Lloyds Group and warnings that more writedowns on US mortgage assets and UK buy-to-let loans were on the way. However, UK rival Barclays, which many in the City suspect still has not come clean about its exposures, was harder hit by these fears on Tuesday, adding 13.4bp to 203.3bp.