Europe: Shares ease as Monte Paschi, Spanish lenders slump

[LONDON] European shares inched lower on Wednesday but stayed close to their highest in over 11 months as merger and acquisition activity propped up the market, while Monte dei Paschi slumped to fresh record lows on worries over its rescue.

The pan-European STOXX index fell 0.2 per cent after ending the previous session at its highest since Jan 4. The euro zone blue-chip index STOXX50 , which closed in positive territory for the year on Tuesday, slipped by 0.3 per cent.

The ailing Italian bank Monte dei Paschi was suspended for excessive volatility several times and fell as much as 19 per cent to its lowest level since it listed in 1999.

The lender, which said it could run out of cash in four months, is seeking to raise 5 billion euros (S$7.54 billion) on the market by the end of the year in a last-ditch attempt to avert state aid.

However Monte dei Paschi has been unable to find an anchor investor willing to put money in its privately funded rescue plan less than 24 hours before the offer ends. That has prompted speculation that the government could step in this week to bail it out.

Italy's actions over the next 24 hours regarding its banks will be crucial for the country's credit rating, DBRS' top sovereign analyst said.

Investors expressed doubts that the 20 billion euros that the government seeks to borrow to help the banking sector will be enough.

"Will 20 billion be enough to solve Italy's banking problem? It's hard to say after so many failures. Certainly state aid ... would be better than forcing the banking system to patch up the weaker outliers," Anthilia Capital fund manager Giuseppe Sersale said.

Italy's bank index was up 0.4 per cent.

Spanish lenders also fell sharply with Banco Popular , down 5.8 per cent, leading losses, after the European Court of Justice overturned a Spanish court ruling that limited the banks' liabilities for so-called floor clauses in mortgage contracts. It asked them to repay customers over the whole life of the loan.

Actelion rose 6.4 per cent after sources told Reuters late on Tuesday that Sanofi's takeover talks with the Swiss drugmaker were progressing. Shares in Actelion fell in the previous session on worries a deal would not materialise soon.

Mediaset rose as much as 8 per cent, hitting a 16-month high as it extended a rally after France's Vivendi said it raised its stake in the Italian broadcaster to above 25 per cent. Its shares pared some gains and ended 2.8 per cent higher.

M&A news also buoyed Switzerland's Dormakaba. Shares in the security group rose 6.9 per cent, leading gainers on the STOXX after the company agreed to buy mechanical security businesses from Stanley Black & Decker for US$725 million.

REUTERS