European stocks swooned Monday on concerns that the narrow victory of Germany's Chancellor Gerhard Schroeder in Sunday's election will fail to spur economic growth in Europe's largest economy.
Investors' uncertainty about the global political situation and the possibility of war with Iraq also continued to weigh on European markets, and a weak opening on Wall Street further dampened investors' spirits.
The Dow Jones Stoxx 50 index--which tracks European blue chips--shed 3.7% while falling to its lowest point since June 2, 1997. Half the index's components lost more than 5%.
All 17 of the Western European benchmark indexes declined. Germany's DAX index dropped the most, sliding 4.9% after Schroeder's Social Democrats and the Green Party won a majority in the lower house of Parliament. The result is the closest of any German election since World War II.
London's FT-SE index hit a six-year low, dropping 3.1%. The CAC 40 index in Paris fell 3.3%.
Investing in German companies is risky "because a weak government means no economic growth for the next four years," said Michael Browne, who manages $100 million at Sofaer Global Research, a hedge fund in London. "If you're a bank, your outlook just got worse" because companies may default on loans.
Schroeder may refrain from easing restrictions on firing workers or cutting unemployment benefits because of the need to retain support from the labor unions, the traditional backbone of his party.
His scope to boost spending or cut taxes also is limited by European Union budget rules.
Shares of Deutsche Bank, Europe's biggest bank, fell 7%. HVB Group, Germany's No. 2 bank, slumped 5.7%.
"We have never been so worried about the German banking industry," Merrill Lynch & Co. wrote in a research report published today. It cited falling prices of equities held by the banks and concerns about their ability to withstand slowing economic growth.
Among European insurers, Munich Re tumbled 10.5% after an analyst downgraded the stock. Declines in stock markets are resulting in higher investment losses at insurers, depleting their reserves and forcing some to raise money on the market.
Banks also have been affected, with a lingering economic slump exacerbating a drop in earnings and prompting more borrowers to default on loans.
U.S. Attorney Probing Xerox's Accounting
Xerox Corp., the world's largest copier maker, said late Monday that the U.S. attorney's office in Bridgeport, Conn., is investigating the company's accounting practices from 1997 to 2001.
The probe covers accounting issues already reviewed by and settled with the Securities and Exchange Commission, company spokeswoman Christa Carone said.
Xerox agreed in April to pay a $10-million fine and restate results for the last five years to settle SEC claims that it inaccurately booked some sales.
"We just learned of this information today and we still need to understand the full context of the investigation" by the U.S. attorney's office, Carone said.
Yorba Linda Couple
A Yorba Linda couple who say they lost $100,000 when Salomon Smith Barney steered them into unsuitable investments sued the brokerage Monday in Orange County Superior Court, contending its failure to arbitrate their claims constitutes breach of contract, breach of fiduciary duty and fraud.
Oscar and Mercedes Bugarini's suit seeks to nullify Salomon's requirement--standard for the brokerage industry--that arbitrators instead of courts hear disputes.
The Bugarinis are among hundreds of disgruntled investors left in the lurch by the refusal of the National Assn. of Securities Dealers and the New York Stock Exchange to provide arbitration panels in California.
The stock-exchange groups are protesting new state rules that go further than the NASD and NYSE in making arbitrators disclose potential conflicts of interest.
At a hearing scheduled for today, a judge in Oakland is to consider the regulatory groups' claims that the rules are cumbersome, increase arbitration costs and are superseded by NASD and NYSE national standards.
Attorneys said NASD's dispute-resolution arm is offering to provide arbitration in California--but only if investors waive their rights under the state rules.
The Bugarinis' attorney, Douglas Ames of Huntington Beach, called that "a form of extortion."
Philip Aidikoff, a Beverly Hills lawyer who heads the Public Investors Arbitration Bar Assn., said the attempt to force the dispute into state court is unusual, because brokerage contracts specify that investors can ask a federal judge to appoint arbitrators when normal arbitration isn't available.
Officials at NASD and Salomon couldn't be reached for comment.
Bond Trade Group Seeks Rules for Debt Analysts
A Securities and Exchange Commission proposal that would require analysts to certify their research reports and disclose whether they were paid to offer a particular recommendation should be applied to fixed-income analysts, the Bond Market Assn. said Monday.
The association, a trade group for firms that underwrite and trade debt securities, backed the proposal in a letter filed with the SEC in response to requests for public comment on the matter.
Under regulations proposed by the SEC in July, investment analysts would have to include a statement in their reports certifying that their research reflects their personal views and isn't related to their firms' investment banking work.
"The association and its members believe the proposal establishes reasonable standards to which analysts of all types should be able to subscribe," John Ramsay, the group's vice president and senior regulatory counsel, said.