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Europe Markets: Merger talk drives up Spanish banks — a bright spot on a tough day for European equities

Europe Markets

CaixaBank and Bankia say they are in merger talks

The new headquarters of “La Caixa — Caixabank” in Valencia, Spain, on October 7, 2017.

AFP via Getty Images

Merger talk for two Spanish banks drove up Europe’s financial sector on Friday, proving a bright spot in a tough session as investors remained stymied on the heels of a selloff driven by losses for high-flying technology stocks.

A day after tumbling 1.4% in a late-day slide, the Stoxx Europe 600 index
was flat at 366.37, vacillating between gains and losses, and headed for a loss of just over 0.5%. The French CAC 40
rose 0.4% and the FTSE 100
gained 0.4%, but the German DAX
eased 0.1%.

An outperformer among regional indexes, Spain’s IBEX 30
climbed 0.7%, as shares of CaixaBank
surged 11% and Bankia
jumped 23% after the Spanish banks said late on Thursday that they are in talks over a possible merger, potentially the biggest tie-up in the country’s banking sector in years.

That filtered through to gains for the rest of the sector, with shares of Sabadell
rising 11% and Bankinter
up 5%. Banco Santander
rose 3% and Banco Bilbao Vizcaya Argentaria
rose over 4% each.

“While Spanish banking consolidation has seen a number of false starts, we believe consolidation is fast becoming much more of an imperative given [1] COVID fallout; [2] low rates; and [3] relaxation of merger requirements by the ECB/SSM (European Central Bank/Single Supervisory Mechanism),” said Citi analysts Stefan Nedialkov and Anand Demble, in a note to clients.

Citi has a buy rating on Bankia and neutral on CaixaBank.

Investors remained focused on U.S. markets after the Dow industrials
tumbled by more than 800 points on Thursday, driven by a tech-led selloff that wiped 5% off the Nasdaq Composite
Along with the S&P 500
all three indexes marked the worst one-day drop since June 11.

Stocks remained in the red for Friday. August U.S. payrolls gains data came in with a better-than-expected gain of 1.4 million, versus the 1.2 million gain expected. The unemployment rate fell to 8.4% from 10.2%, the government said on Friday.

In Europe, data showed German manufacturing orders losing steam in July, though they rose for the third-straight month.

One notable element of Thursday’s trade was that this year’s standout advancers were among the worst performers. Some of that selling continued on Friday, with communications company Sinch
dropping 3% after falling nearly 10% on Thursday.

Elsewhere, shares of Ryanair Holdings
rose 2.5%. The cut-rate airline said it raised €400 million ($474.1 million) via a slightly discounted share placing late on Thursday. The airline is seeking to preserve cash and boost its financial position in an industry heavily damaged by the global pandemic. Shares of rival easyJet
climbed 2.3%.

Virgin Atlantic announced on Friday that it had completed a a £1.2 billion ($1.6 billion) rescue plan, but would still need to cut 1,150 jobs. The airline is controlled by holding company Virgin Atlantic Limited, which is 51% owned by the Virgin Group and 49% by Delta Air Lines

Shares of Just Eat
slipped 0.8%. Rival GrubHub
said on Friday the acquisition by the Netherlands-based food delivery service is proceeding as expected, but disclosed an amendment to the merger agreement in which the “end date” is extended to Dec. 31, 2021 from June 10, 2021.

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