European stocks had their biggest weekly decline in eight weeks as concern mounted that peripheral euro area countries can?t repay their debt and North Korea fired shells on South Korea for the first time since the 1950-53 war.
Banks and insurers led the decline as investors waited to find out how much Ireland will borrow from the European bailout fund and as the cost of insuring Portuguese government debt rose to a record. Bank of Ireland Plc tumbled 45 percent, the largest weekly drop in the benchmark Stoxx Europe 600 Index. Banco Santander SA plunged 12 percent and BNP Paribas SA lost 8.5 percent.
The benchmark Stoxx 600 fell 1.1 percent this past week, the biggest weekly drop since September. The gauge has still rallied 15 percent since its low this year in May as investors speculated that the world economy will grow after companies reported better-than-estimated results and central banks from the U.S. to Japan announced more stimulus measures to prop up the economic recovery.
?After Ireland, Portugal is a likely candidate for aid with Spain close behind,? John Plassard, head of European equities at Louis Capital Markets LP, said. ?Amid these problems, the geopolitical problem between the two Koreas is the cherry on the cake in a bad week.?
Korea Conflict
North Korea threatened a ?shower of terrifying fire? as the U.S. sent the nuclear-powered aircraft carrier USS Washington to the Yellow Sea for joint military exercises with South Korea. On Nov. 23, North Korea shelled a South Korean fishing community and military base on Yeonpyeong island with highly inflammable ammunition that killed four people, including two civilian construction workers, blew the windows out of a school and torched houses.
In Europe, the cost of insuring Portuguese and Spanish government debt against default rose to record levels, according to data provider CMA. Portuguese Finance Minister Fernando Teixeira dos Santos said European Union governments can?t impose a bailout on his country even as speculation mounts that Portugal will eventually have to ask for one. The majority of euro region governments and the European Central Bank are putting pressure on Portugal to accept a bailout to stop contagion spreading to Spain, the Financial Times Deutschland reported on Friday.
Irish Bailout
Irish officials raced to complete a deal for an international aid package before financial markets reopen next week with talks focusing on the status of bondholders in Ireland?s largest banks amid concern that the government will force holders of such debt to share the cost of bailing out its financial system. Euro area finance ministers plan to finalize an agreement on Nov. 28, a European Union official said on condition of anonymity.
Bundesbank President, Axel Weber, who is also a European Central Bank Governing Council member, said the EU bailout fund has enough money to calm markets and that there?s no alternative to the European currency union.
?I think we can rule out? the pessimistic scenario that the fund could be exhausted, Weber said in a panel discussion in Berlin on Thursday. ?We?ll do everything to safeguard the existence of the euro,? he added.
Bank of Ireland lost 45 percent amid concern that the government will force some of the cost of bailing out the country?s banks on senior bondholders. The bank has 5.4 billion euros ($7.2 billion) of senior unsecured debt and another 5.9 billion euros of government-guaranteed bonds, according to Bloomberg data.
Two people familiar with the situation said the lender may end up in majority state control as the government injects more capital into the bank.
Santander, Mediobanca
Banco Santander, Spain?s largest bank, shed 12 percent after calling on the European Commission to reject plans by global regulators that would force lenders to accrue extra capital during boom times. The bank urged the commission to either take a different approach than proposed by the Basel Committee on Banking Supervision, or scrap the idea entirely.
Italy?s Mediobanca SpA retreated 9.9 percent, while France?s BNP Paribas declined 8.5 percent.
De La Rue Plc fell 13 percent as the company said there still ?remains uncertainty? about ongoing paper production issues. De La Rue reported a 17 percent drop in first half revenue and is to be removed from the Stoxx Europe 600 index.
Porsche Automobil Holding SE climbed 15 percent after the carmaker?s operating profit increased more than sevenfold in the first quarter.
Provident Financial Plc, the U.K.?s biggest subprime lender, rallied 12 percent after saying that government?s spending cuts will have a ?modest? effect on its customers.
Capital Shopping Centres Group Plc, Britain?s biggest mall owner, rose 9.7 percent this past week after saying Simon Property Group Inc. may offer more than 2.3 billion pounds ($3.6 billion) in cash for the company.
To contact the reporter on this story: Giles Broom in Zurich at gbroom@bloomberg.net.
To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net.
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