VARIOUS: European stocks tumble as credit market jitters intensify

As intensifying credit market jitters cause European stocks to fall in early trade, the French president Nicolas Sarkozy says governments must learn from the market volatility and the European Union questions the reaction rate of credit rating agencies. European stocks tumbled on Thursday (August 13) as credit market jitters intensified, the yen rose, government bond yields fell and all measures of risk reflected growing investor queasiness. Financial stocks led a 2.7 percent fall in Europe as part of an across-the-board slide fuelled by worries over exposure to the battered U.S. subprime mortgages market. In London as commuters arrived for work in Canary Wharf, stock tickers revealed the extent of the slide with one analyst describing the situation in the markets as one of orderly panic. "Clearly there is an appetite to sell but when there is an appetite to sell there is a two way trade, somebody has got to be there to buy and fundamental fund managers are beginning to think that it is not far off the time to be taking some bets on good companies," Reuters Europe Treasury Editor Nick Edwards explained. "We can say that there is a contagious phenomena in the European stock markets with the strong flow we have seen at the closing in the U.S.," Financial analyst Mr Benoit De Broissia from Richelieu Finance added. "The markets are monitoring very closely the would-be contagious phenomena of the crisis which hit the mortgage companies in the U.S. We have already seen the common interventions of the central banks, European, American and Japanese. They have injected a lot of fund in the banking system to stabilise the market," he said. The European Commission will review a voluntary code used by credit rating agencies as they appeared too slow in warning about problems in the U.S. subprime mortgage sector, the European Union executive said. After the collapse of energy trader Enron in 2001, global market watchdogs came out with a voluntary code. This was targeted at what they saw as conflicts of interest in the sector, whereby rating agencies are paid by the firms they rate. EU Internal Market Commissioner Charlie McCreevy had said he wanted to give the code time to prove itself but the U.S. subprime crisis has highlighted apparent failings. "The Commission is going to be looking at the issue of credit ratings agencies, particularly as they relate to rating of structured products," Commission spokeswoman Antonia Mochan told a regular news briefing. French President Nicolas Sarkozy has also put the spotlight on the role of credit rating agencies in the present financial market turmoil, saying it is important to ask questions about their role in identifying risk. "We have to ask ourselves about the exact role that ratings agencies have played regarding this category of risk," he wrote in a letter to German Chancellor Angela Merkel released in Paris on Thursday. Financial Analyst Benoit de Broissia told Reuters: "We are not expecting anything from Nicolas Sarkozy or Angela Merkel, neither from the regulation's authorities. The thing is when the market is becoming tense the authorities are talking about introducing more controls. What I have understood is that Mr Sarkozy wanted more controls on the credit rating agencies. In short-term the evolution of the financial market should remain erratic. In the long term the rating of the companies are very attractive and that the world economy is very strong level. The companies' results which have been released are very good so we can expect in the long term a positive reaction from the market." In Brussels, EC spokesperson Antonia Mochan said the Commission wished to look at a number of issues -- governance of these agencies, their management of conflicts of interest, resourcing and ratings performance. She said the Commission would focus on "the concerns we have in regard to their apparent slowness in responding to material market evidence of deterioration since 2006." Mochan said the review would take at least until April, 2008: "This is an issue that we have been looking at, aware of and concerned about since the end of 2006. Mr Mc Creevy met one of the agencies last month as part of its annual process of meeting with them and raised some of his concerns then and of course as events have moved on he's now requested this meeting with the chairman," Mochan said. McCreevy will meet next month with the chairman of the Committee of European Securities Regulators (CESR), which groups the EU's 27 national market watchdogs, to discuss the issue. CESR is due to come out in April 2008 with a report on how structured finance instruments are rated and McCreevy will decide on what to do next after then. He is also expected to raise the issue in his regular meetings with U.S. regulators.

ITN Source | August 16, 2007

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