Weakness among financial and retail stocks sent European shares sliding again on Wednesday, as Provident Financial fell sharply after a profit warning. Europe’s STOXX 600 fell 0.8 percent, extending the previous session’s losses, while euro zone stocks fell more sharply, down 1 percent along with the bloc’s blue chips. Financial services, insurance and banking stocks were among the worst-performing sectors, punished by heavy losses from British subprime lender Provident Financial. Provident plummeted as much as 20 percent after warning on profit, saying operational disruption from the reorganisation of its consumer credit division would weigh for the rest of the financial year.
“We had been concerned about rising impairments and customer attrition in the consumer credit division as the new model was implemented. The transition appears to have been more painful than expected,” said Liberum analysts. The lender’s plunge weighed on sentiment for banks, which were among the top fallers on France’s CAC 40 and Germany’s DAX. Credit Agricole, Societe Generale, BNP Paribas and Natixis fell 1.9 to 2.4 percent, helping make the French blue-chip index the worst European performer. Deutsche Bank and Commerzbank fell up to 1.7 percent.
Belgium’s KBC was the worst-performing on the banking index, down 3.3 percent as its investor day got off to a disappointing start. KBC released a new core equity tier 1 target, a key metric of banks’ solvency, of 16.6 percent, and analysts at KBW said the new figure did not leave room for excess capital distribution. “We expect the share price may be on the weak side before further details are disclosed during the day,” they said.
A supply glut weighing on crude prices compounded losses, sending the oil and gas index to a near 7-month low. Retail stocks were also weighed by Belgian food retailer Colruyt falling 4.8 percent after its full-year results missed consensus. “This disappointing performance is mainly due to higher operating costs as Colruyt continued to invest in staff and stores, as well as a more competitive environment in Belgium in the second hald,” said Barclays analysts. Scout24 fell after Deutsche Telekom sold a 9.3 percent stake in the online classified-ads firm.
Meanwhile, Costa Coffee owner Whitbread was the best European performer, up 5.1 percent after reporting first-quarter sales rose 7.6 percent. It spurred the European travel and leisure sector up 0.2 percent, the only sector not in the red. Despite some glum company updates on the day, the latest first-quarter results figures highlight the reasons for investors’ belief in underlying strength among European corporates.
STOXX 600 companies have on average reported earnings 10.2 percent above estimates, beating the 4 percent average surprise factor (since 2011) and the 6 percent surprise factor over the past four quarters, Thomson Reuters data showed. Of the 300 companies reporting first quarter revenues to date, 74.3 percent exceeded analyst estimates, against 53.6 percent in a typical quarter.