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Shares drop on bank refunding talk

Pan Pylas | Hagadone News Network | UPDATED 14 years, 2 months AGO
by Pan Pylas
| September 12, 2010 9:00 PM

LONDON - Germany's main stock market was the only major index in Europe and the U.S. to fall Friday as investors were dismayed by reports that Deutsche Bank AG is planning to raise as much as 11.4 billion to lift its stake in Deutsche Postbank AG and shore up its capital base.

Overall though, sentiment continued to be supported by Thursday's stronger than anticipated U.S. economic data and an unexpected upward revision to second quarter Japanese economic growth.

In Europe, the FTSE 100 index of leading British shares closed up 7.48 points, or 0.1 percent, at 5,501.64 while France's CAC-40 ended up 3.67 points, or 0.1 percent, at 3,725.82.

Germany's DAX closed down 6.75 points, or 0.1 percent, at 6,214.77, having spent the whole session in negative territory following reports that Deutsche Bank is poised to tap shareholders for more cash, to be partly used to increase its stake in retail bank Deutsche Postbank AG. It currently holds nearly 30 percent of Postbank.

Deutsche Bank's share price fell around 5 percent, making it easily the biggest decliner on the DAX. Rival Commerzbank AG was the second bigger faller, with a 2 percent drop, as investors fretted that it may also need to tap the markets for cash, just days after a Wall Street Journal report reignited concerns that this summer's stress tests into 91 EU banks were not rigorous enough.

The speculation that Deutsche Bank and others will be looking to raise money comes just before the Bank for International Settlements is to make public new rules that are likely to compel banks to hold more capital in reserve than they currently do. The new rules are expected to be outlined on Sunday.

The expectation is that the BIS will require banks to have a capital ratio of at least 7 percent. While most banks' capital ratios are well above that, it does represent a marked increase on the capital requirements before the financial crisis.

The new capital rules will also affect U.S. banks but they have raised far more cash in the markets over the past couple of years than their counterparts in the EU.

As a result, investors in the U.S. are fairly indifferent to the upcoming publication of the new capital rules.

On Wall Street, the Dow Jones industrial average was closed up 0.5 percent at 10,462.77, while the broader Standard & Poor's rose 0.5 percent to 1,109.55.

Shares in the U.S. continued to be supported by Thursday's strong jobs and trade data, which helped to ease fears that the world's largest economy might slip back into recession.

"If markets remain fundamentally hesitant, some better-than-expected data seems to have reduced concerns about an imminent double dip in the U.S.," said Herve Goulletquer, an analyst at Credit Agricole.

Earlier in Asia, stocks generally advanced after Japan said its economy grew more than estimated in the second quarter of the year and Thursday's advance in Europe and the U.S.

The Shanghai Composite Index rose 0.3 percent to 2,663.21 while Hong Kong's Hang Seng Index rose 0.4 percent to 21,257.39.

Japan's Nikkei 225 stock average closed up 1.6 percent at 9,239.17 after slipping back from the morning's 2 percent rise. Investors welcomed figures showing that improved capital spending helped Japan's economy grow 0.4 percent in the second quarter from the previous quarter, compared with an initial estimate of 0.1 percent.

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