The financial sector got the news it was looking for as European leaders approved a deal to resolve the debt crisis there and create a viable bailout package. Major European and American investment banks posted strong gains as a result as the Dow pushed ahead, gaining 2.75 percent and over 300 points while the S&P 500 and NASDAQ were both up over 3 percent.
European Leaders Reach Debt Deal
The markets appeared to be at the whim of European leaders for months, shifting up or down on any rumor about a potential resolution to the debt crisis or lack thereof. Politicians in the Euro zone didn’t disappoint Thursday, though, as they approved a three-pronged plan to resolve the crisis and avoid Greek default. The plan calls for Banks to take a 50 percent haircut on Greek bonds, increases the European Financial Stability Facility’s value to over $1.4 trillion, and has European banks recapitalize, bringing their tier 1 capital ratios up to 9 percent. It remains unclear where the money to increase the EFSF will come from, but European leaders appear to be engaging China and the IMF to invest in the plan. The plan, while imperfect, proved more than enough to reassure investors as major gains in the markets reflected a new optimism.
Stocks Up for Major European Banks
European banks were among the biggest beneficiaries of the positive news from Europe and showed it on Thursday. French banks were among the biggest holders of Greek debt, and the resolution to the crisis sent their stock soaring. Societe Generale SA (SCGLY) showed gains of just over 20 percent in early trading, BNP Paribas SA (BNP) jumped nearly 17 percent, and Credit Agricole SA (ACA) gained nearly 22 percent. Deutsche Bank (DB) gaped up in before-market trading and held gains in their stock at nearly 20 percent, while Dutch bank ING Groep N.V. (ING) also enjoyed the news from neighboring Belgium, posting gains close to 18 percent. Banks in the British Isles got in on the act too, with Barclays PLC (BCS) jumping over 16 percent, Lloyds Banking Group PLC (LYG) up over 10 percent, The Royal Bank of Scotland (RBS) gaining nearly 12 percent, and Bank of Ireland (IRE) climbing over 10 percent. Swiss banks were also firmly in positive territory, with Credit Suisse Group AG (CS) gaining over 15 percent and UBS AG (UBS) up over 11 percent in early trading. Spanish bank Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) posted increases near 11 percent, while the National Bank of Greece (NBG) tacked on over 11 percent.
American Financials Also Up Big
The American financial sector also posted strong gains on the positive news from Europe. Morgan Stanley (MS) was up nearly 15 percent by mid-day while the Goldman Sachs Group, Inc. (GS), Citigroup, Inc. (C), and Bank of American Corp. (BAC) all showed gains in excess of 8 percent. Investment banking firm Jefferies Group, Inc. (JEF) spiked nearly 18 percent, asset managers Lazard Ltd. (LAZ) shot up 16 percent, investors Waddell & Reed Financial (WDR) was up over 14 percent, The T. Rowe Price Group, Inc. (TROW) jumped nearly 11 percent, and The Blackstone Group L.P. (BX) was up around 10 percent.