European stocks fall amid new bank write-down fears

European stocks lost ground yesterday, reversing a two-day winning run, as financials such as Swiss bank UBS fell on fears of more write-downs and economic data pointed to slower eurozone and US growth.

The FTSEurofirst 300 index of top European shares ended 0.4 per cent lower at 1,312.10 points, having gained more than four per cent over the past two sessions on hopes that the worst of the asset write-downs in the banking sector may be over.

UBS dropped 4.7 per-cent to 32.40 Swiss francs, contributing to a 1.9 per cent slide for the DJ Stoxx European banks index. Fox-Pitt Kelton said UBS faced "operating challenges around cost cutting, staff departures and capital constraint".

"This is a challenge for a new management team against the backdrop of a difficult operating environment," Fox-Pitt Kelton said, noting that "the end of write-downs is not guaranteed".

WestLB cut its target price for UBS to 48 francs from 53 francs. JPMorgan slashed its 2008 and 2009 earnings per share forecasts for the Swiss bank by 36 per cent and cut its target price to 45 francs from 55 francs. Also among financials, Britain's Lloyds TSB fell 4.2 per cent, French insurer AXA was down 3.5 per cent and Royal Bank of Scotland shed 3.5 per cent.

Goldman Sachs downgraded Lloyds to "sell", and Lehman Brothers, in a European banks sector note, said: "Higher credit costs will be the main driver of banks' performance... the UK banks remain highly leveraged to domestic credit, deposits and capital and are likely to continue to underperform until asset values near their bottom".

"With (credit) indices such as the ABX and the CMBX finishing the (first) quarter significantly lower than both year-end and the end of February, further structured credit-related write-downs are certain to be a feature," Lehman Brothers said, referring to the US financial industry.

It added: "This could again lead to concerns that those European banks which have not taken sufficiently conservative marks could again face write-downs".