Europe's First Quarter by the Numbers
A look at the data and happenings that shaped the first quarter for European businesses and markets.
New York light crude futures began the first quarter of 2008 at $99 a barrel and continued to hit record highs from early February to March. Oil hit a record high of $111.80 a barrel on March 17. The week after, it suffered a huge correction on concerns of a weakening demand as a result of a slowdown in the US. Oil is up about 14 percent this year.
Gold rocketed higher in the first quarter, starting the year at more than $860 an ounce and reaching a high of $1,030.80 an ounce on March 17. It tumbled more than 10 percent to $906.20 on March 20.
The euro managed to hit new highs against the dollar as worries of a US recession persisted, dragging the greenback down. The euro hit an all-time high of $1.5904 against the dollar on March 17, after news that Bear Stearns was being sold to JPMorgan Chase at the rock-bottom price of $2 a share. The single-zone currency is up 6.8% on the year. The currency has continued to rise as the ECB refrains from cutting rates, citing inflationary problems.
The dollar fell below parity against the Swiss franc on March 17.
The European Central Bank and the Bank of England came under pressure in the first quarter of the year, as the Federal Reserve cut interest rates consistently from January through to March. Investors called for the central banks to cut rates as a soaring euro affected companies that traded mostly in the dollar. The two central banks lent an extra 15 billion euros to banks over the Easter weekend, in order to tide them over. The ECB maintained its hawkish stance throughout the quarter, keeping rates on hold at 4 percent, citing rising inflation.
The BOE, meanwhile, kept rates steady at 5.5% in January, cut rates by 25 basis points in February and left rates on hold at 5.25% in March.
Bailing out Banks
On Feb. 17, the UK central bank announced the temporary nationalization of mortgage lender Northern Rock, causing a stir. BOE Governor Mervyn King and UK Chancellor of the Exchequer Alistair Darling faced criticism from angry shareholders and taxpayers after they decided that a private sale would not happen in the near term.
Fading prospects for a sale of the subprime-stricken German bank IKB led to increased pressure on the Berlin government for a planned injection after efforts of a 450-million-euro capital injection from KfW, the state-owned development bank that is IKB's largest shareholder failed to sustain it. The lender has had an estimated 8 billion euros of support. The rising cost of the bailout sparked criticism of the government's role.
How the Indexes Performed
Germany's DAX index was down almost 17 percent for the first quarter, hitting its highest intraday level of 7,969.9 on Jan. 3 and its lowest intraday level of 6,237.63 on March 18, when the Bear Stearns news broke.
France's CAC-40 index fell more than 16 percent, reaching an intraday high of 5,567 on Jan. 4 and plummeting to an intraday low of 4,481.8 on March 18.
London's FTSE-100 index traded lower by almost 13% for the first three months of 2008, with 6,534.7 on January 4 as its highest intraday mark and the March 5,414.4 as its lowest intraday level on March 18.
It has been the worst quarter thus far for global stocks since the Internet bubble burst in 2002.
Banks and financial services stocks grabbed the headlines, but the three Ts -- Technology, Telecom and Travel -- all were down between 19 percent and 21 percent for the year to date, hurt by lower dollar.
The banking sector dragged European indexes lower, as it fell about 17 percent from January to March. The financial services sector slipped 15 percent.
Basic resources stocks had a roller-coaster quarter, falling to 523.63 on January 22 and then rocketing from there until it saw a slight correction in the middle of March. The sector was down only 7 percent so far, the best performing sector, with food and beverage coming in second.
On Jan. 8 Societe Generale caused a stir after announcing a $7.1 billion loss due to a rogue trader, Jerome Kerviel, who has recently been released from prison pending his court hearing, dwarfing the $1.4 billion loss by trader Nick Leeson that broke British bank Barings.
In mid-February, Klaus Zumwinkel, now ex-CEO of Deutsche Post, became the first of many wealthy Germans to be investigated by prosecutors for transferring money to tax-haven Liechtenstein. The prosecutors obtained documents on offshore accounts at LGT Bank in Liechtenstein. The story sparked a worldwide investigation to see if more citizens were dodging taxes through Liechtenstein.
Earnings and Writedowns
Banking earnings dominated the first quarter, as the credit crunch worsened, with Deutsche Bank reporting a 48% drop in fourth-quarter profit on Feb. 7, which was above analysts' expectations, and did not reveal any further subprime-related writedowns on top of the 2.2 billion euros announced in October.
Credit Suisse revealed $2.85 billion of mark-downs on structured credit positions caused in part by 'pricing errors' on Feb. 19 after announcing 1.3 billion Swiss francs in writedowns for the fourth-quarter on Feb. 12. The bank said losses would dent first-quarter net income by an estimated $1 billion, although it would still make a profit in the period.
Credit Suisse's main rival UBS reported a fourth-quarter loss of $11.3 billion on Feb. 14, taking $13.7 billion in writedowns on assets affected by subprime mortgages.
In the UK, Barclays raised the value of its 2007 writedowns to $3.1 billion, lower than most of its rivals, and increased its dividend by 10 percent.
France's Societe Generale said Feb. 21 that net income for 2007 fell to 947 million euros from 5.2 billion euros the previous year. It announced 2.05 billion euros of writedowns linked to risky U.S. mortgages on Jan. 24, the same day it estimated 2007 profit would be between 600 million and 800 million euros.
RBS raised its writedown on assets tarnished by the impact of the U.S. subprime housing crisis and credit crunch to $3.2 billion on Feb. 28 and raised its dividend by 10 percent.
Lloyds TSB was another UK bank who raised its writedowns to $547.3 million on Feb. 22 and increased its dividend.
Mergers and acquisitions in the first-quarter dwindled compared to the same quarter in the previous year. Most major M&A deals were in the basic resource sector, with BHP Billiton making a hostile bid for rival Rio Tinto, which was thwarted by Rio's rejections of the $150 billion offer and Chinalco's increased stake in the miner.
Vale's $90 billion bid for London-listed miner Xstrata, was initially rejected by Xstrata on valuation, but Vale then pulled its offer after a "collapse of talks."