The Stoxx Europe 600 index slumped 4.8% to close at 226.70 as fear again gripped the market after three fairly calm days.

The index extended its plunge after disappointing U.S. economic data, including a massive drop in the Philadelphia Fed's business outlook index to negative 30.7 in August from 3.2 in July.

Europe's heavy losses were spread across all countries and market sectors, though banks faced some of the biggest falls.

Shares of Barclays PLC sank 12% in London, Societe Generale fell 12% in Paris and Dexia SA slumped 14% in Brussels. The losses for SocGen and Dexia came even after a ban on short-selling introduced last week.

"Banking stocks have been decimated across Europe, with indiscriminate selling even in banks that maintain their exposure to the crisis is slim," said Will Hedden, sales trader at IG Markets. "No sector is surviving this tidal wave of selling, and the fact that financials are first in the firing line will only lend support to the anti-short-selling-ban camp."

Hedden said a downgrade of global growth forecasts by Morgan Stanley was getting a lot of attention. Adding to worries, Ewald Nowotny, a member of the European Central Bank's governing council, said he fears Europe could enter a long period of limited economic growth, akin to Japan.

The Wall Street Journal also reported Thursday that U.S. regulators are stepping up their scrutiny of European banks amid worries that they could face funding difficulties in the U.S. The report came a day after data from the European Central Bank showed an unnamed institution had borrowed $500 million--the first time it had made such a dollar-denominated loan since February.

In its decision to cut growth forecasts, Morgan Stanley said the U.S. and euro zone are "hovering dangerously close to recession."

The firm cut its outlook for global growth in 2012 to 3.8% from 4.5%, though it said another recession is "not our base case," because the Federal Reserve and European Central Bank are likely to take more action.

Losses were particularly heavy in Germany, where Commerzbank AG fell 10% and car makers also tumbled on global growth worries. Shares of Volkswagen AG fell 7% and BMW AG dropped 7.8%.

The DAX 30 index slumped 5.8% to close at 5,602.80.

Italy's FTSE MIB index tumbled 6.2% to 14,970.42, as shares of car maker Fiat SpA lost nearly 12% of their value.

Switzerland's Holcim sank 8%. The cement producer said second-quarter earnings fell 13% as a strong Swiss franc and high raw-material prices hurt profitability.

French rival Lafarge SA also dropped 7.2%, contributing to a 5.5% drop for the CAC 40 index, which settled at 3,076.04.

Other noteworthy decliners in Paris included Veolia Environnement SA, which fell 8.7% after a downgrade by UBS to neutral from buy. The broker said that Veolia's restructuring plans are positive but that it will take time, bring new risks and dilute earnings in the near term.

Vallourec SA tumbled 9.8% after Goldman Sachs cut the steel-tubing producer to a neutral rating from buy previously, citing higher costs.

Dutch firm Royal Boskalis Westminster NV slumped more than 13%. The maritime-services group reported an 8% drop in first-half profit and said economic unrest is likely to delay investments in large-scale oil and gas projects.

In London, mining stocks ranked alongside banks as the worst performers, reflecting the worries about global growth.

Xstrata PLC fell 10% after the firm and its partners approved further investment to expand Cerrejon, a coal mine in Colombia. The FTSE 100 index ended 4.5% lower at 5,092.23.

Before the credit crunch, these banks were offering iPods, five-year railcards, free driving lessons and £100 cash to freshers who opened an account when starting university.
Of course, students have long been advised to ignore such blatant bribes and concentrate on which bank provides the most competitive overdraft terms. This advice still holds true today, although few students are likely to have their heads turned by the goodies on offer.
Lloyds TSB, for example, is offering free youth hostel membership for just one year; Halifax (part of the same banking group) will provide discounted breakdown cover; Barclays is supplying vouchers for Phones4U, while Santander has "gadget" insurance. None is likely to set the average undergraduate's pulse racing. In fact, the only decent perk among them is HSBC's travel insurance, valid for two years and including winter sports cover.
But today's freshers have to be far more financially aware now that large debts have become a fact of life for the vast majority of students.
Those starting a three-year degree course next month can expect to graduate with debts of more than £26,100, according to the latest survey by www.push.co.uk, the independent student website. This debt has increased by more than 15pc in just three years.

 

Investors were rattled by news a lender in the single currency bloc was forced to go cap in hand to the European Central Bank for emergency cash.

Regulators in the United States caused further alarm by stepping up scrutiny of European banks’ operations in America amid worries over funding.


Global fears: Bank shares around the world tumbled yesterday on fears that the sovereign debt crisis in the Eurozone could spill into the banking system

The European banking sector, which is heavily exposed to national debts in the region, fell 6.6 per cent and is down 29.7 per cent this year. ‘Banking stocks have been decimated across Europe,’ said Will Hedden, a trader at IG Index in London.

UK banks were caught in the selloff and led the FTSE 100 index to its worst one-day slide since November 2008, shortly after the collapse of Lehman Brothers.

The blue-chip index fell 4.5 per cent or 239.37 points to 5092.23. Barclays was the biggest faller in the Footsie, down 11.5 per cent or 19.95p to a 52-week low of 154.05p.

 

It was followed lower by Royal Bank of Scotland, off 2.8p at 21.95p, and Lloyds Banking Group, down 3.04p to 29.81p.

Shares in the three banks have fallen at least 50 per cent since their highs earlier in the year – meaning more than £60billion has been wiped off their value.

RBS and Lloyds shares are now worth less than half the amount the Government paid when it rescued the two banks from collapse during the financial crisis.

It means British taxpayers are sitting on losses of £34.5billion on the investment. Bank shares in Europe also took a beating yesterday. Société Générale was down 11.6 per cent in France while Germany’s Commerzbank was off 10.5 per cent.

But the biggest faller of the day was Dexia, Belgium’s largest bank by assets, which dropped 14 per cent in Brussels. The losses came despite last week’s ban on short-selling – a way traders profit from falling prices – in France, Belgium, Italy and Spain.

‘No sector is surviving this tidal wave of selling, and the fact that financials are first in the firing line will only lend support to the antishort- selling-ban camp,’ said Hedden.

The ECB lent $500million (£303million) to an unnamed bank in the Eurozone – the first time it has made such a loan since February in a sign the normal funding channels are freezing up. ‘It rings a couple of warning bells,’ said Elisabeth Afseth, an analyst at Evolution.

With concerns over the Eurozone debt crisis mounting, US regulators are taking a closer look at the American units of European banks.

The Federal Reserve Bank of New York, which oversees the US operations of many large European banks, has asked for more information about how the lenders fund themselves in a bid to stop the crisis infecting the US banking system.

New York Fed officials are ‘very concerned’ about European banks facing funding difficulties in the US, according to a senior executive at a major European bank. Analysts warned that calm will not return to the markets until the debt crisis is solved.

Richard Hunter, head of UK equities at stockbrokers Hargreaves Lansdown, said: ‘Investors have realised that despite the words of politicians in the US and Europe there are still no concrete plans to sort out the debt crisis.

‘Shares are looking cheap but that is fighting against the twin concerns of growth and debt and neither of these have been sorted out in any way.

‘People are more than willing to listen to concrete plans to deal with the debt situation but none are forthcoming.

“So far in 2011, central banks in the emerging markets have already bought more than double the gold they bought in all of 2010, and we’ve got almost five months to go for the rest of the year,” said Jeff Clark, senior precious-metals analyst with Casey Research.

This buying has occurred despite historically high prices. “So apparently, central banks don’t regard the gold price as too high,” Clark said.

For the year to date, net purchases by the world’s central banks are 203.5 metric tons, which already is a 168% increase from 76 tons for all of 2010, said Natalie Dempster, director, government affairs, with the World Gold Council.

Most of the data is gleamed international financial statistics released by the International Monetary Fund at the beginning of each month. Additionally, some central banks—such as South Korea—make their own announcements.

The buying is coming from emerging-market nations that are accumulating foreign-exchange reserves, Dempster reported.  For the year to date, the biggest buyers have been Mexico, 98.8 tons; Russia, 48; Thailand, 26.3; and South Korea, 25.

During just the first five months of the year, the central-bank buying amounted to 15% of global mining production during the same period, said a research note this week from Commerzbank.

“The central-bank buying is coming on top of speculative buying and creating a Perfect Storm for gold,” said Ross Norman, chief executive officer of Sharps Pixley.

Central Banks Buying To Diversify And Manage Risk

The net purchases by central banks are a reversal from the not-too-distant past. Until recent years, European central banks collectively were selling a few hundred tons of gold annually, resulting in net annual sales. Those sales have dried up while purchases have increased from emerging-market nations.

Some of the central-bank buying is due to a rebalancing of portfolios, Dempster said. As emerging-market nations increase foreign-exchange reserves, the percentage from existing gold holdings gets smaller.

“The tonnage was constant but the percentage was declining,” Dempster explained. “So they wanted to rebalance it (the percentage) back up to what they believed was the appropriate strategic level.”

Further, the strategies of reserve managers have changed in the last couple of years since the global financial crisis.

“There is much more emphasis now on risk-management strategies, as opposed to yield enhancement,” Dempster said. “And obviously, if gold is anything, it’s a tool to manage risk.”

Also, gold has become more attractive due to worries about other traditional reserve assets such as bonds, particularly with high debt levels in many European nations and the U.S., analysts said.

“They feel the sovereign-debt risk is high, therefore they’re buying gold even though the price is high,” Clark said. “They are viewing gold as a necessity now and not just one way to diversify, in my opinion.”

Dempster pointed out that the guidelines on which assets that some central banks can buy can be restrictive. “They may not have the option of diversifying into the equity market or diversifying into hedge funds. For a lot of them, it is fixed income and gold,” she said.

Some reserve managers have looked toward the bonds of nations such as Australia and New Zealand. “But they don’t really have sufficiently deep debt markets to offer meaningful diversification, and gold does,” Dempster said. “It’s a deep and liquid market.”

Further, reserve managers are turning to gold for many of the same reasons as private investors, such as concerns about inflation and U.S. dollar weakness, Dempster said.

Sharps Pixley’s.Norman commented that the buying is tending to come from nations that are either rich in resources or perceive themselves as “overly extended” in the U.S. Treasury market. Often on gold-price dips, he said, good support has emerged, suggesting large buyers that just might be central banks.

“I wouldn’t be surprised to find central bank on the other side of any good selling at the moment to acquire a little bit of metal on the dip,” Norman said.

Analysts Anticipate Continued Central-Bank Purchases

Dempster said she anticipates more “meaningful” buying from central banks,  “driven by the need to rebalance, the deterioration in the quality of other reserve assets, and a continued emphasis on risk management.”

Clark cited a UBS survey of 80 central bank reserve managers earlier this summer predicting that there would be a further build-up of gold reserves over the next decade. The extent of further central-bank buying could hinge on how they view the sovereign-debt risk, he said.

“If they think the sovereign-debt risk is going to not let up or increase, they are not going to let up on their gold buying,” he said.

Meanwhile, there is an assumption that China is continuing to add gold to its reserves. The country reports its gold holdings less frequently than most.

“You could say it’s a predictable surprise,” Clark said. “At some point, they are going to announce they’ve been buying gold again, just like they did a few years ago.”

The debt-ceiling agreement in Washington this week enabled the U.S. to avoid a technical default by increasing the Treasury Department’s borrowing authority. But it also means still-higher deficits that may become worrisome to investors and other central banks alike.

“The ratings agencies may be holding off on re-rating America, but nevertheless central banks are looking at their risk portfolio and wondering to what extent they want to extend (holdings) in U.S. Treasurys,” Norman said. “I would be surprised to find many seeking to extend their position in U.S. debt. With that being the case, they need to find other reserve assets….There are relatively few things they can move into, and gold is one of them.”

Big U.S. and European banks were hit hard in Thursday’s stock sell-off, highlighting investor concerns about some of the more prominent financial institutions.

In the U.S., Bank of America’s stock fell by 7.44% and has now tumbled by 33% this year. Bank of America’s chief executive, Brian Moynihan, will now really have his work cut out for him next week when he plans to take questions on a public call hosted by Bruce Berkowitz, the rock star hedge fund manager who has taken a big and controversial position in the nation’s biggest bank.

The KBW Bank Index fell by 5.3%, but some of the biggest banks in the U.S. fell more, like Citigroup, which fell by 6.6%. Big banks like Citigroup are struggling to deal with surging litigation costs stemming from the credit crisis while also dealing with more stringent capital standards.

The situation in Europe is worse, where investors are starting to wonder more and more about the Italian government securities being held by the large European banks, not to mention IOUs from the other countries like Spain. Italy is really getting more mired in the euro crisis and UniCredit shares tumbled by more than 9% on Thursday. Lloyds Banking Group has now seen its shares lose nearly half their value in 2011.

The decline in bank stocks could add momentum to the job cuts already being implemented on Wall Street and the banking sector. HSBC recently said it would slice 30,000 jobs. It will also potentially weigh on the economic recovery. But at least some banks are making the best of an ominous situation. Bank of New York Mellon said on Thursday it will start to charge clients fleeing to safety a fee for extraordinarily high deposits.