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Europe: Shares slip further, Provident Financial plummets


[LONDON] Weakness among financial and energy stocks led European shares to fall again on Wednesday, as Provident Financial dropped following a profit warning, though Italian lenders bucked the downbeat trend.

Europe's Stoxx 600 fell 0.2 per cent, extending the previous session's losses slightly. Both euro zone stocks and blue chips fell 0.2 per cent.

Financial services, insurance and banking stocks were among the worst performers, punished by heavy losses from British subprime lender Provident Financial.

Provident plummeted as much as 20 per cent after warning that disruption from the reorganisation of its consumer credit division would weigh on its results for the rest of the financial year.

"We had been concerned about rising impairments and customer attrition in the consumer credit division as the new model was implemented. The transition appears to have been more painful than expected," said Liberum analysts.

Belgium's KBC was the worst-performing on the banking index, down 4 per cent as its investor day got off to a disappointing start.

KBC released a new core equity tier 1 target, a key metric of banks' solvency, of 16.6 per cent, and analysts at KBW said the new figure did not leave room for excess capital distribution.

"We expect the share price may be on the weak side before further details are disclosed during the day," they said.

A supply glut weighing on crude prices compounded losses, sending the oil and gas index to a near seven-month low.

Italy's equity market provided some relief, however, as banks UBI Banca, BPER Banca, UniCredit and Intesa Sanpaolo all gained between 2.5 per cent to over 5 per cent after Intesa offered to buy the good assets of two troubled Veneto banks.

Italy benchmark jumped 1.3 per cent on the back of this positive development for its banking sector.

Retail stocks were also weighed by Belgian food retailer Colruyt falling 6.7 per cent after its full-year results missed consensus. Despite some glum company updates on the day, the latest first-quarter results figures highlight the reasons for investors' belief in underlying strength among European companies.

Stoxx 600 companies have on average reported earnings 10.2 per cent above estimates, beating the 4 per cent average surprise factor (since 2011) and the 6 per cent surprise factor over the past four quarters, Thomson Reuters I/B/E/S data showed.

Of the 300 companies reporting first quarter revenues to date, 74.3 per cent exceeded analyst estimates, against 53.6 per cent in a typical quarter.