May 19 (Bloomberg) -- European stocks slid after Germany banned some bets against government bonds and financial institutions, sparking concern that regulation will increase. U.S. index futures and Asian equities fell.
Deutsche Bank AG and Banco Santander SA led financial shares lower as German Chancellor Angela Merkel’s government rattled investors. Bayerische Motoren Werke AG dropped the most in six months after BofA Merrill Lynch Global Research downgraded the world’s largest luxury-car maker. Basic-resources stocks followed metal prices lower, paced by Rio Tinto Group.
The Stoxx Europe 600 Index sank 2.2 percent to 245.8 at 12:09 p.m. in London. The gauge has fallen 9.7 percent since this year’s peak on April 15 as credit-ratings downgrades of Greece, Portugal and Spain added to concern that European governments will struggle to fund their deficits.
“Financial regulation definitely is coming, it’s just a matter of the politicians and bureaucrats working out how best to implement what they choose to do,” Kevin Gardiner, head of investment strategy at Barclays Wealth, said in a Bloomberg Television interview. “Eventually the dust will settle and investors will come back to risky assets, but at the moment this regulation issue is shattering everything.”
The MSCI Asia Pacific Index fell 1.4 percent to the lowest level in three months. Futures on the Standard & Poor’s 500 Index retreated 0.7 percent, indicating the benchmark gauge for U.S. equities will extend yesterday’s 1.4 percent drop.
Naked Shorts
Germany’s BaFin markets regulator banned investors from naked short sales -- speculating on declines in companies they don’t own -- for 10 banks and insurers, as well as naked credit- default swaps on euro-area government bonds starting today. Short sellers borrow assets and sell them, betting the price will fall and they’ll be able to buy them later, return them to the lender and pocket the difference. In naked short-selling, traders never borrow the assets so betting is unlimited.
Merkel is seeking to extend the ban across Europe, saying the euro is at risk and the European Union may be facing its greatest challenge with “incalculable” consequences if leaders fail to act.
“If one of Germany’s financial market regulator, BaFin, intentions was to calm financial markets, it did not achieve this purpose in our view,” BofA Merrill Lynch economist Holger Schmieding wrote in a report. “Germany may want to set an ‘example’ for others in Europe to follow. But whether or not France and others do follow with the same temporary ban remains to be seen.”
‘More Efficient’
A Europe-wide ban on the practices is “doubtful,” Eddy Wymeersch, Europe’s top market regulator, said today. European Union Financial Services Commissioner Michel Barnier said the rules would have been “more efficient” if they were coordinated with the EU. France, The Netherlands and Finland said they have no plans to implement similar measures.
Even so, Belgium’s market regulator said it’s consulting the Committee of European Securities Regulators and the government about whether to extend an existing ban on uncovered short positions in shares of financial companies to credit- default swaps on euro-area government bonds.
The Stoxx 600 surged 4.8 percent last week after the European Union agreed to offer financial assistance worth as much as 750 billion euros ($914 billion) in a bid to stem the weakness in the region’s currency. Greece will tap emergency loans from the euro region today to repay 8.5 billion euros of 10-year bonds.
U.S. Inflation
Deutsche Bank, Germany’s biggest lender, fell 2.4 percent to 48.67 euros and Santander, the biggest Spanish bank, sank 4 percent to 8.40 euros. BNP Paribas SA, France’s biggest, fell 3.5 percent to 46.16 euros. A gauge of bank stocks slid 3.4 percent to the lowest level in more than a week.
Basic-resources stocks were the worst performers as copper, lead, nickel, tin and zinc fell on the London Metal Exchange. Xstrata Plc, the world’s fourth-largest copper producer, tumbled 6.8 percent to 940.9 pence, poised for a close at the lowest level since November. Rio Tinto, the world’s third-largest mining company, sank 6.6 percent to 2,987 pence.
BMW Falls
BMW dropped 4.5 percent to 37.59 euros, the biggest slide since November. BofA Merrill Lynch cut its recommendation on the carmaker to “underperform” from “neutral,” citing concerns demand may be hurt by government austerity measures.
The brokerage also downgraded GKN Plc to “underperform.” The U.K. maker of car parts tumbled 8.9 percent to 122.5 pence, pacing a decline in the Stoxx 600 Automobiles & Parts Index.
ICAP Plc declined 4 percent to 374 pence, paring two days of gains. The world’s largest broker of transactions between banks said full-year pretax profit fell 5 percent as markets stabilized and volatility declined.
Home Retail Group Plc plunged 4 percent to 253.9 pence after UBS AG cut the stock to “neutral” from “buy,” saying “earnings risks are rising, with the new government possibly tightening fiscal policy more rapidly than expected.”
Telecom Italia SpA fell 2.6 percent to 99.2 euro cents after Italy’s antitrust authority opened a probe into the phone company over bidding for fixed-line phone and Internet services contracts. Italy’s biggest phone company said that the complaint by rival FastWeb SpA is “completely groundless.”
Mitchells & Butlers Plc, the U.K. pub owner that had a board shakeup in January, climbed 2.5 percent to 311.1 pence after posting a fiscal first-half profit as food sales climbed and finance charges declined.
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