Nestle, Italian bank deal prop up European shares

[LONDON] European shares rose on Monday as banks rallied after Italy reached a deal to wind up two failed regional banks and Nestle climbed to a new record after an activist investor urged changes at the consumer bellwether.

Italy began winding up two failed Veneto region banks on Sunday in a deal that could cost taxpayers up to 17 billion euros (S$26.4 billion) but puts an end to a long-running crisis and leaves the lenders' good assets in the hands of Intesa Sanpaolo.

"The announcement of definitive steps to resolve the two Veneto banks should be seen as a positive for Italian banks and the broader sector (albeit at a high cost)," said Jefferies analyst Benjie Creelan-Sandford.

"Intesa, as acquirer of the 'good' assets, also looks to be getting a good deal," he added.

Shares in Intesa, Italy's largest retail bank, rose 3.5 per cent while the euro zone bank index rose 1.1 per cent.

Gains in bank stocks helped the pan-European Stoxx 600 and the euro zone blue chip indexes end 0.4 and 0.5 per cent higher respectively, while the UK's FTSE added 0.3 per cent.

Further supporting sentiment was a survey showing that German business confidence unexpectedly rose in June to a record high, a fresh sign that company executives are more upbeat about the growth outlook of Europe's largest economy.

The German blue chip index gained 0.3 per cent.

Nestle led Stoxx gainers, up 4.3 per cent. Activist investor Daniel Loeb's Third Point unveiled a stake of more than one per cent, urging the group to improve its margins, buy back stock and sell its stake in L'Oreal.

UBS said that despite its scale, Nestle lagged its rivals in profitability and that the move could put pressure on its CEO to take tangible steps to accelerate value creation. L'Oreal rose around 4 per cent.

Gains in Nestle also gave a lift to sector peers such as Danone and Diageo, sending the European food and beverage index up 2 per cent.

Higher oil prices propped up the energy sector, the worst performing this year, though the sector gave up earlier gains to end broadly flat as oil prices steadied.

European tech stocks came under pressure, however, down 0.5 per cent following a 3.7 per cent fall in Dialog Semiconductor, which dropped after a media report cited comments from the chipmaker's CEO that the group is looking for larger acquisitions to reduce its reliance on Apple.

William Hill was another sizeable faller, down 4.4 per cent following a downbeat broker note.

REUTERS