Royal Bank of Scotland down 39%

European Stocks Fall, Led by RBS, Barclays; U.S. Futures Drop
By Michael Patterson

Oct. 7 (Bloomberg) — European stocks fell for a second day as concern that financial firms may need more capital overshadowed speculation central banks around the world will reduce borrowing costs. U.S. index futures and Asian shares declined.

Royal Bank of Scotland Group Plc tumbled 39 percent after the bank had its credit rating cut for the first time in 10 years on a weak financial profile.'' Asian shares pared declines and European stocks gained in early trading after Australia lowered its key rate by one percentage point. Europe's Dow Jones Stoxx 600 Index tumbled the most since 1987 yesterday as bank bailouts spread and falling commodities dragged down raw-materials producers. The Dow Jones Industrial Average fell as much as 800 points, then recouped more than half its losses in the final 75 minutes of trading on speculation the Federal Reserve will lower rates. The Stoxx 600 fell 1.4 percent to 238.09 at 9:15 a.m. in London, reversing earlier gains of as much as 2.6 percent. Futures on the Standard & Poor's 500 Index slipped 0.6 percent. The MSCI Asia Pacific Index fell 1.1 percent, after earlier dropping as much as 3.2 percent. The Stoxx 600, down 33 percent this year, was valued at 10.1 times the reported earnings of companies in the index yesterday, the cheapest since Bloomberg began compiling the data in January 2002. The MSCI World traded at 12.8 times profit yesterday, the cheapest since at least January 1995. The emerging markets gauge was valued at 9.5 times earnings. RBS Falls RBS dropped 39 percent to 90 pence. The bank had its long- term and short-term counterparty credit ratings lowered Oct. 6 to A+/A-1 from AA-/A-1+ by the London-based analysts at Standard & Poor's. Last time the rating was reduced was in 1998.RBS’s financial profile may continue to weaken,’’ Standard & Poor’s said in a statement, citing a combination of mixed earnings prospects, deteriorating credit risk in its key geographies, and difficult market conditions.'' Barclays Plc declined 7.1 percent to 290 pence. U.K. Chancellor of the Exchequer Alistair Darling and Bank of England Governor Mervyn King met with banking chief executive officers from RBS's Fred Goodwin to Barclays's John Varley late yesterday to discuss the investment, said the people, who declined to be identified because the meeting was confidential.If you own shares in these companies, you know it just does not pay to hold them in this environment,’’ said Simon Denham, managing director at Capital Spreads in London. ``I’d rather come back when you are certain things have improved.’’

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.

Last Updated: October 7, 2008 04:30 EDT

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