More Financial Melt Downs Coming

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European Stocks Decline for Fourth Day; Allianz, UBS, HBOS Drop

By Sarah Jones

March 3 (Bloomberg) -- European stocks retreated for a fourth day, led by financial companies, as Warren Buffett said ``the party is over'' for insurers and investors speculated banks may have more credit-market losses.

Allianz SE, Europe's largest insurer, slipped to a two-week low after billionaire investor Buffett said the industry's profit margins will drop ``significantly.'' UBS AG fell for a third day in Zurich after Credit Suisse Group said the company's writedowns may total $15 billion. HBOS Plc declined as Bear Stearns Cos. downgraded the U.K.'s largest mortgage lender.

The Dow Jones Stoxx 600 Index decreased 1.4 percent to 314.46 in London, as all 18 industry groups fell except carmakers. The index has dropped 14 percent this year as analysts slashed profit-growth estimates on expectations losses related to U.S. subprime mortgages and a slowdown in the world's largest economy will curb earnings.

``There are a lot of financial companies that investors just don't want to go near,'' said James Buckley, a London-based director at Baring Asset Management, which oversees about $48 billion. ``There is considerable concern about the near-term earnings outlook because of writedowns.''

Profits at Stoxx 600 companies will probably rise 4.5 percent this year, down from 11 percent predicted at the end of 2007, according to analysts' estimates compiled by Bloomberg.

National benchmarks fell in all 18 markets in western Europe. France's CAC sank 1 percent. Germany's DAX retreated 0.9 percent and the U.K.'s FTSE 100 slipped 1.1 percent.

The DAX has dropped 17 percent this year, the second- biggest decline after India among the world's 10 largest equity markets.

Earnings Growth

``It's difficult to envisage earnings growth remaining if the economies are slowing and there is not interbank lending or credit,'' said Stephen Docherty, who helps oversee about $194 billion at Aberdeen Asset Management in Glasgow.

Indexes pared some of their losses after a U.S. manufacturing gauge fell less than economists estimated. The Institute for Supply Management's manufacturing index dropped to 48.3 last month from 50.7 in January.

The Stoxx 50 lost 1.4 percent, while the Euro Stoxx 50, a measure for the euro region, fell 1.3 percent.

Allianz sank 1.7 percent to 115.55 euros. Swiss Reinsurance Co., the world's biggest reinsurer, declined 3.5 percent to 81.15 francs. Prudential Plc, the U.K.'s second-largest insurance company, lost 1.6 percent to 601 pence.

Buffett's Berkshire Hathaway Inc. said Feb. 29 that fourth- quarter profit fell 18 percent on declining insurance rates.

``The party is over,'' Buffett said in his annual letter to shareholders. ``It is a certainty that insurance industry profit margins, including ours, will fall significantly in 2008. Prices are down.''

UBS dropped 3.3 percent to 33.22 francs. Credit Suisse said Europe's biggest bank by assets faces further ``large'' writedowns from its subprime and other ``troubled'' assets, which may total 15.5 billion Swiss francs ($15 billion).

`Further Writedowns'

``Further writedowns appear likely and could be large,'' analyst Daniel Davies wrote in a research note today. ``Taking more pessimistic assumptions in order to estimate what losses could be incurred in actually selling this portfolio,'' he said, ``would give a figure closer to 15.5 billion francs.''

HBOS dropped 7.5 percent to 558 pence after Bear Stearns downgraded the mortgage lender to ``peer perform'' from ``outperform.'' The brokerage expects earnings per share to fall by 6 percent in 2008, saying the bank's exposure to asset-backed securities and other debt securities is greater than expected.

Barclays Plc, the U.K.'s third-biggest bank, lost 3.2 percent to 462 pence. BNP Paribas SA, France's largest, slipped 1.5 percent to 58.68 euros.

Ambac Financial Group Inc., the AAA-rated bond insurer seeking to avoid a downgrade, said on Feb. 29 that it marked down the value of derivative contracts linked to subprime mortgages by $650 million in January and its loss ``trend'' will continue into February.

The markdowns follow more than $6 billion of mark-to-market losses on guarantees of collateralized-debt obligations it reported in 2007.

$181 Billion

Financial institutions have disclosed more than $181 billion in writedowns and credit losses since the beginning of 2007, helping drag the Stoxx 600 down 21 percent from a 6 1/2 year high reached on June 1. The index has still almost doubled since the bull market began five years ago.

``You have to put these market moves into perspective,'' said Docherty at Aberdeen Asset Management. ``The market being down 10 or so percent off the back of five years of very, very strong returns is just a reminder that we do operate in an economic cycle.''

HSBC Holdings Plc rose 3.1 percent to 790 pence after Europe's biggest bank by market value said profit rose 21 percent to $19.1 billion last year as emerging-market lending made up for subprime losses in the U.S.

EADS, Pearson

European Aeronautic, Defence & Space Co. rallied 9.2 percent to 19.04 euros for the best performance in the Stoxx 600. The U.S. Air Force picked the company's Airbus A330 over Boeing Co.'s 767 for an airborne refueling contract valued at as much as $35 billion.

Pearson Plc, the publisher of the Financial Times newspaper, fell 2.6 percent to 648.5 pence on a disappointing forecast for textbook sales.

Revenue excluding currency movements and acquisitions will rise ``in the low single digits'' in the school business this year, versus 6 percent in 2007, Pearson said today.

Analysts predicted 5 percent to 6 percent, said Alex DeGroote, an analyst at Panmure Gordon with a ``hold'' rating on the stock.

Volkswagen AG climbed 1.6 percent to 152.35 euros after Porsche SE said its board has given approval to raise its stake in Volkswagen to more than 50 percent as it seeks greater control over Europe's largest carmaker.

Porsche, maker of the 911 sports car, added 2.4 percent to 116.20 euros. The Stoxx 600's gauge of automobile-related companies gained 0.4 percent for the only advance among 18 industry groups in the broader index.