HSBC, Fortis Bring Banks Down

LONDON - European stocks traded slightly lower Monday afternoon, after lackluster earnings from financial firms HSBC and Fortis kicked off the reporting season for the banking sector.

Shares of HSBC were down 1.2%, to 827.25 pence ($16.26), after the bank said its semiannual profits had fallen 27.7% over the year. The firm has so far weathered the subprime crisis relatively well, thanks to its high penetration of emerging markets, but on Monday its chairman warned that these newer markets would grow with "less momentum" than before.

Banking stocks were down 1.0%, making that the worst-performing sector, while benchmark indexes in London and Paris gained 0.1% during afternoon trading. The Frankfurt DAX slipped 0.4%.

Fortis shares fell 2.8%, to 9.04 euros ($14.07), in Brussels, after the Belgian-Dutch bank/insurance firm said second-quarter profits had fallen 46.4% over the year. The bank pushed out its chief executive, Jean-Paul Votron, last month, after announcing an unpopular $12.7 billion capital-raising plan, and it warned on Monday that there would be more business volatility throughout the rest of 2008.

Citigroup analyst Kiri Vijayarajah said Fortis had taken on substantial debt to buy businesses such as ABN Amro's Dutch banking activities, and that more capital raising and deleveraging might be required in the future.

Oil fell back slightly in Europe, down a bit more than a dollar, to $122.20 per barrel; crude futures in New York were also down, at $124.17. Trading is likely to be mixed going forward, with a new tropical storm in the Gulf of Mexico expected to threaten oil facilities later this week.

A slightly stronger dollar and fears of softening demand pushed metals prices down, with mining stocks suffering as a result. Rio Tinto and BHP Billiton both fell 2.2% in London, while Xstrata slipped 2.1%.

In the currency markets, the euro ticked down to $1.557, ahead of an interest rate decision this week from the European Central Bank; rates are expected to stay on hold at 4.25%. Euro zone producer price data released on Monday showed a slightly higher than expected annual rise, but this did not have a big impact on the euro-dollar exchange rate.

Source: Forbes.com