By Blaise Robinson
PARIS, June 2 (Reuters) - European stocks dropped in early
trade on Monday, ending a three-session rally, as fresh trouble
at British lender Bradford & Bingley <BB.L> reignited concerns
over the banking sector.
Bradford & Bingley stock tumbled 23 percent after it said on
Sunday its CEO had quit and followed that up on Monday morning
with a gloomy trading update, a restructured rights issue and
the sale of a stake to U.S. private equity firm Texas Pacific
Group, sparking fears over short-term prospects for the bank and
the wider British mortgage market.
That brought a chill to the sector, dragging Alliance &
Leicester <ALLL.L> down 6.4 percent, HBOS <HBOS.L> down 8.2
percent, UBS <UBSN.VX> down 3.6 percent and UniCredit <CRDI.MI>
down 2.4 percent.
At 0851 GMT, the FTSEurofirst 300 <> index of top
European shares had fallen 1.5 percent to 1,315.02 points.
"It rekindles concerns over the banking sector, and we're
probably going to see more asset writedowns in the market, but
there is a bit of hope at least, and that is Texas Pacific
coming to the rescue. The sector is still in trouble, but
systemic risks are behind us," said Chicuong Dang, equity
analyst at Richelieu Finance.
Banking stocks have been hammered over the past year by
fears over the impact of a crisis in the credit market that have
forced a number of financial institutions to unveil huge asset
writedowns and emergency capital injections.
The DJ Stoxx bank index <.SX7P>, down 1.8 percent on the
day, is down 22 percent so far this year, while the FTSEurofirst
300 has lost 13 percent over the same period.
"Once again the credit crisis is in the spotlight. The real
estate bubble is bursting, and UK banks are the most hit because
they are the most fragile," said Romain Boscher, head of equity
management at Groupama Asset Management in Paris.
"But it could spread, and other European countries such as
Spain could be next," he said.
"With rising concerns over the success of capital increases
recently announced by a number of banks, the risk of a domino
effect is back, and the sector remains extremely shaky. It will
take between three and six years to resolve this crisis, not
just a couple of quarters, as some people hope."
Energy shares were also down, as oil prices fell below $127
a barrel. BP <BP.L> shed 1.7 percent, Royal Dutch Shell <RDSa.L>
lost 1.4 percent, and Repsol YPF <REP.MC> fell 2.3 percent.
Around Europe, Germany's DAX index <> was down 1.2
percent, UK's FTSE 100 index <> down 1 percent and France's
CAC 40 <> down 1.6 percent.
Fiat SpA <FIA.MI> dropped 3 percent, dragged lower by Chief
Executive Officer Sergio Marchionne's comments late on Sunday
that new car sales in Italy fell almost 20 percent last month.
Among the few stocks on the rise, Roche <ROG.VX> gained 3.4
percent after weekend news suggested fears for sales of Roche
and Genentech's <DNA.N> blockbuster Avastin may be overdone.
(Editing by Will Waterman)
