Euro Stocks Struggle on Disappointing Earnings Reports

European shares staggered on Monday during a cautious trading session, with Europe’s biggest bank reporting lackluster earnings. Meanwhile, doubts over the proposed $87-billion merger with Praxair sent shares tumbling in Linde, a German industrial gases group.

The slumps in HSBC and Banco BPM weighed down the banking sector right after they released their earnings reports. Chemicals and Industrials shares also burdened the pan-European STOXX 600, which was 0.1 percent lower.

HSBC shares lost 1.1 percent after its disappointing earnings, which was due to the increasing costs from investments in its new growth strategy. It was also partly due to a $765 million provision against the sale of its US mortgage-backed securities.

“On revenues, we note on the positive side that loan growth continues to be very strong,” Goldman Sachs analysts stated. “On the negative side, we note that the group has lowered its expected net interest income sensitivity to US dollar rates.”

Banco BPM shares dropped 8.6 percent after the Italian lender’s earnings failed to meet expectations due to higher than expected loan loss provisions. Its capital buffer also suffered because of the steep falls in Italian government bonds in the aftermath of May’s political upheaval.

“CET1 (core equity tier 1) fell 67 basis points quarter-on-quarter to 10.83 percent, with the expected BTP headwind exacerbated by the lack of room to absorb additional DTAs (deferred tax assets) and reduced thresholds,” said UBS analysts.

Meanwhile, European banks have performed well overall during the second quarter earnings season, coming up with stronger than expected earnings growth and profitability.

On the other hand, Linde slipped 9.1 percent to a 3-and-a-half month low after it stated that regulators may ask it and its US rival Praxair to sell more assets just to get the necessary antitrust approval for their tie-up.
“The probability for the merger has decreased,” stated Baader Helvea analysts. However, they added that they still believe the deal will close successfully.

The heavyweight stock has weighed on Germany’s DAX down to underperform peers, losing 0.2 percent. Linde also dragged the chemicals sector index 1.3 percent lower.

In addition, Germany suffered the biggest drop in industrial orders in one and a half years, making industrial giants Siemens and Thyssenkrupp tumble down 0.8 to 0.9 percent.

British service offices group IWG was also hit by the M&A blunder, plummeting 21 percent to the bottom of the STOXX 600 after the company closed takeover discussions with private equity firms Terra Firma, TDR, and Starwood.

On the flip side, gainers include Finnish refiner Neste, which fetched 4 percent after its fall last Friday. Brokers Inderes and Kepler Cheuvreux raised their target prices on the stock.

Overall, the second-quarter earnings for MSCI Europe firms are expected to have grown 7.8 percent year-on-year in euro terms. They’re expected to be growing 2.5 percent year-on-year for MSCI EMU.

Europe has been an unpopular market for stock investors, but some have indicated that the outflows could turn as soon as the companies deliver good results and analysts revise their expectations upwards.

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