Europe’s banks staged a little recovery on the credit markets during Wednesday morning after a previous session of heavy sell-offs following fears over their exposure to eastern European markets.
Results from major European banks, including Societe Generale and Commerzbank also reassured the market, with SocGen reporting a profit for the fourth quarter and an increase in its dividend.
It became marginally cheaper to buy protection against default of several European banks, including HBOS, Credit Suisse and BNP Paribas. Credit default swaps on HBOS narrowed by 5.5 basis points to 170bp, while Credit Suisse came in 5.1bp to 175bp and BNP tightened from 89.71bp to 87.5bp.
It was a relatively settled day on the iTraxx Europe index of investment grade companies, in marked contrast to the heavy sell-off being seen on the London equity market, which fell below the 4,000 mark on Wednesday morning. By mid-morning the index was 0.1bps narrower at 172.4bp.
The Crossover list, meanwhile, which measures the cost of default protection for mostly junk-rates companies, came in by 5.2bp to 1105.9b. This means it costs €1.1m annually to insure €10m worth of crossover debt.
Enel, the Italian power company, was the day’s biggest gainer, albeit in a market that was barely moving. Its cost of protection fell in price by 12.1bp to 427.5bp after the market gave a guarded approval to news it had not yet made a decision on whether to buy a 25 per cent stake in Spain’s Endesa. Analysts had expressed concern that the deal, which is likely to be funded by debt, could have a negative impact on the company’s credit rating.
Investors were nervous about the debt at the French car makers Renault and Peugeot-Citroen, on the morning after the French government submitted its bailout plan for scrutiny by the European Commission. Peugeot widened 6.2bp to 396.7bp, while Renault moved from 401.9bp to 408.3bp. Peugeot’s stock, meanwhile, moved in the opposite direction on reports of market rumours that the French government could take a stake in the company.
Daimler, the Mercedes-Benz manufacturer, continued to suffer as the market adjusted to the company reporting a heavier loss than expected for their fourth quarter. WestLB, the German bank, recommended selling the stock as the cost of insuring its debt widened by about 2bp to 278.33.