European stocks fell nearly 2 % early on Monday, heading for
their third consecutive quarter of losses, with Swiss bank UBS tumbling on
renewed worries over the prospect of more asset writedowns.
Vodafone was the biggest faller among
blue chips, down 5 % after Morgan Stanley cut its recommendation to
“underweight” from “overweight” and slashed its price
target to 170 pence from 215p, citing concerns over potential EU regulatory
action to align mobile phone termination rates with costs.
UBS shares fell 3.8 % after Merrill Lynch said it expected
the Swiss lender to make a further $11 bln of first-quarter writedowns,
resulting in a loss of 8.2 bln Swiss franc ($8.22 bln) in the first three
months.
“We estimate that UBS’ capital base can withstand $16 bln
of further writedowns on legacy assets and we expect $11 bln of that capacity
to be absorbed in Q1,” Merrill Lynch said in a note. “Based on our
conservative writedown forecasts, UBS will possibly need to raise capital this
year to cover its legacy writedowns.”
Other banks were on the downside on Monday, with BNP Paribas
down 1.9 % and Credit Suisse down 2.9 %.
Investors were eagerly expecting a proposal due later on
Monday from U.S. Treasury Secretary Henry Paulson for broad reform of
financial market regulation.
EARNINGS OUTLOOK
Stock markets around the world have fallen over the past few
months on worries about the turmoil in the
subprime mortgage market as well as over the prospect of a
downturn, and a number of strategists said forecasts for corporate earnings
will have to be trimmed.
“A lot of people are calling for earnings growth
between 5 and 15 % depending on the region, but we think that actually, we
might see an earnings recession this year. So there is some denial,”
Wenzel said.
Around Europe,
DAX index was down 1.7 %,
FTSE 100 index down 1.5 % and
CAC 40 down 1.3 %.
On the quarter, the DAX is down 20 %, the FTSE 100 down 13 %
and the CAC 40 down 17 %.
On the upside,
insurer Friends Provident rose 3.7 % after it rejected a cash takeover proposal
at 150 pence per share, valuing it at $7 bln, from
Flowers.
