A bloodied Vivendi Universal cast a long shadow over European shares yesterday as tech-laden Nasdaq hit fresh five-year lows, and investors feared that US style accounting scandals were appearing in Europe too.
By 1530 GMT with most bourses shut, the FTSE Eurotop 300 index was down three per cent at 1,041 points, with last September's lows back in the benchmark's sights.
Media giant Vivendi slumped as Monday's euphoric nine per cent surge on news its unpopular chief executive Jean-Marie Messier was due to step down evaporated yesterday amid accounting worries and a credit rating downgrade to junk status.
"Vivendi is just panic," said Stuart Fraser, head of European equities at Standard Life Investments, an Edinburgh-based fund management group.
Vivendi shares ended unofficially down 25 per cent at 17.8 euros, wiping seven billion euros off its market capitalisation as investors worried that US-type balance sheet shenanigans such as WorldCom's shock last week, were now landing on Europe's own doorstep.
Vivendi shares are down 70 per cent this year and a far cry from their lifetime high of 141 euros in March 2000.
With debts of more than 60 billion euros, shares in banks that have exposure to Vivendi skidded.
France's three big banks, BNP Paribas, Societe Generale and Credit Lyonnais were all under fire, with BNP worst hit as its shares fell 9.6 per cent.
Dutch Philips Electronics dropped 6.8 per cent after warning it might take an impairment charge on its 3.5 per cent stake in Vivendi as the French company's share plunge shrinks the value of Philips' stake.
Fraser said the accounting issues raised by Le Monde newspaper about how it treated a stake in British broadcaster BSkyB had been revealed by Vivendi in March and hinged on Vivendi's move from French to US accounting standards.
"It's the difference between US GAAP and French GAAP. They moved to US GAAP, and who cares? But if you say anything you are going to be hit. There is just panic in the market," Fraser said.
Near the close, French stocks watchdog COB said said the main accounting details in Le Monde had already been made public and were in line with French accounting rules.
Vivendi said it has "strictly applied" accounting rules to the BSkyB share sale and that US regulators did not object to its accounting treatment of the sale.
On Wall Street, the Dow Jones industrial average was off 0.7 per cent at 9,039 points. The tech-laden Nasdaq Composite, which ended at a five-year low on Monday, sank 2.3 per cent as Vivendi, a software sector profit warning, and downbeat calls on tech stocks all weighed.
The Euro Stoxx 50 index of euro zone blue chips dropped 4.1 per cent to 3,002 points.
Europe's top technology stocks slid as their global totem, the Nasdaq market, sank.
French telecom equipment maker Alcatel shed eight per cent, its stock down by more than a quarter since its shock profit warning in the middle of last week.
The slide in stock markets further unnerved insurers, which rely on equities to make up a big slice of their asset base.
Shares in British insurer Prudential fell 7.8 per cent, Germany's Allianz was down seven per cent, and France's Axa fell six per cent.
Investors put some cash into traditionally less risky areas such as tobacco, real estate, paper, and foods.
Tobacco giant British American Tobacco rose 3.5 per cent, while food sector leader Nestle gained 0.8 per cent.
But concern that Latin America's fragile markets, particularly Argentina and Brazil, could be the undoing of European companies that operate there was still a feature.
Shares in Dutch supermarkets group Ahold sank 9.6 per cent as it stood by its outlook for 2002, though the guidance hinged on developments in Argentina.
Spanish banks Banco Bilbao Vizcaya Argentaria and Santander Central Hispano both heavily exposed to Latin America, fell about four per cent apiece.
Shares in Credit Suisse Bank were down 4.8 per cent as it declined to comment on reports its top officials were gathering to discuss strategy and the role of Chairman and Chief Executive Lukas Muehlemann.
The fear of more accounting scandals, lack of profit recovery, continued slide in markets, and ailing dollar have left few investors with an appetite for stocks despite valuations looking better.
"The broader market is getting quite cheap, but what you have to do is find stocks with decent cash flow and hopefully you will benefit from the market rally when it comes," Standard Life's Fraser said.
US economic figures still suggested a strong rebound, and there was little threat of interest rates going up immediately, all positives for stocks, Fraser said.
But Europe's latest data offered few crumbs of comfort. The European Commission's euro zone economic sentiment index deteriorated in June, which cast a shadow over the prospects for economic recovery in the region.
A separate report showed a business climate indicator for the euro zone fell to a lower-than-expected minus 0.43 in June, the second time in seven months that the index had dipped.
"Consumer and investment confidence is not returning as quickly as people had hoped and all the cracks are widening as the old bad news is accentuated," said Robert Kerr, pan-European equities strategist at Bank of America.
The data reinforced expectations the European Central Bank will leave euro zone interest rates unchanged tomorrow.