European stocks posted the biggest weekly drop since September last year as Greece moved closer to a possible exit from the euro and concern mounted that Spanish banks would need rescue.
A gauge of lenders slumped for the third week, as Banco Espirito Santo SA lost the most since at least 1993. Bankia SA lost 15 percent. Opap SA closed in Athens with the biggest slide since it sold shares to the public in 2001, after first-quarter profit decreased 21 percent.
The STOXX Europe 600 Index fell 5.2 percent to 238.88 this week. The gauge has tumbled 12 percent since this year’s high on March 16, as Greek leaders failed to form a government after elections, squabbling over austerity measures.
“The markets are signaling a risk-off attitude and signs of fatigue regarding the question about what to do with Greece are evident,” said Ben Hauzenberger, a Zurich-based fund manager at Swisscanto Asset Management AG. “Investors are wondering what will happen to the euro in the case of a Greek exit and which countries could follow in its footsteps.”
National benchmark indices fell in all the 18 Western European markets this week. The UK’s FTSE 100 declined 5.5 percent. France’s CAC 40 lost 3.9 percent and Germany’s DAX slid 4.7 percent. Greece’s ASE Index plunged 10 percent.
Greek President Karolos Papoulias failed to secure agreement on a unity government that could have avoided new elections.
The new vote, set for June 17, follows inconclusive elections that propelled the SYRIZA group, which opposes austerity measures required for an international bailout, into second place. Most opinion polls have suggested that SYRIZA may build on that support in the rerun.
“If Greece — and this is the will of the great majority — wants to stay in the euro, then they have to accept the conditions,” German Federal Minister of Finance Wolfgang Schaeuble said in Brussels on Tuesday. “Otherwise it isn’t possible. No responsible candidate can hide that from the electorate.”
Greece’s credit rating was downgraded one level to “CCC” from “B-” by Fitch Ratings on Thursday.
Separately, the European Central Bank (ECB) said it suspended lending to some Greek banks to limit its risk. ECB President Mario Draghi signaled the bank would not compromise on key principles to keep Greece in the eurozone.
Moody’s Investors Service downgraded 16 Spanish banks on Thursday, citing the nation’s recession, reduced funding access for lenders and deterioration in loan quality that will spread beyond real estate to household and company loans.
Spain’s borrowing costs rose at its bond auction that day as it sold the maximum amount of notes targeted and its 10-year bond yields approached levels that drove Greece and Portugal into bailouts.
Spanish Secretary of State of Economy and Business Support Fernando Jimenez Latorre denied speculation that Bankia, the lender with the biggest domestic asset base, was seeing a deposit flight. Bankia said in a regulatory filing that changes in the deposit level in the first half of this month “have a substantially seasonal nature” and that it does not expect “substantial changes” in coming days.
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