Nestle, Italian bank deal prop up European shares

Traders work in front of the German share price index, DAX board, at the stock exchange in Frankfurt

By Danilo Masoni

MILAN (Reuters) – European shares rose on Monday as banks rallied after Italy reached a deal to wind up two failed regional banks and Nestle climbed to a new record after an activist investor urged changes at the consumer bellwether.

Italy began winding up two failed Veneto region banks on Sunday in a deal that could cost taxpayers up to 17 billion euros but puts an end to a long-running crisis and leaves the lenders’ good assets in the hands of Intesa Sanpaolo <ISP.MI>.

“The announcement of definitive steps to resolve the two Veneto banks should be seen as a positive for Italian banks and the broader sector (albeit at a high cost),” said Jefferies analyst Benjie Creelan-Sandford.

“Intesa, as acquiror of the ‘good’ assets, also looks to be getting a good deal,” he added.

Shares in Intesa, Italy’s largest retail bank, rose 3.2 percent while the euro zone bank index <.SX7E> rose 1.3 percent.

Gains in bank stocks helped the pan-European STOXX 600 <.STOXX> and the euro zone blue chip <.STOXX50E> indexes rise 0.6 and 0.7 percent respectively, while UK’s FTSE <.FTSE> added 0.6 percent.

Further supporting sentiment was a survey showing that German business confidence unexpectedly rose in June to a record high, a fresh sign that company executives are more upbeat about the growth outlook of Europe’s largest economy.

The German blue chip index <.GDAXI> added 0.6 percent.

Nestle <NESN.S> led STOXX gainers, up 4.3 percent. Activist investor Daniel Loeb’s Third Point unveiled a stake of more than 1 percent, urging the group to improve its margins, buy back stock and sell its stake in L’Oreal <OREP.PA>.

UBS said despite its scale, Nestle lagged its rivals in profitability and that the move could put pressure on its CEO to take tangible steps to accelerate value creation. L’Oreal rose 4.1 percent.

Gains in Nestle also gave a lift to sector peers such as Danone <DANO.PA>, Unilever <ULVR.L> and Diageo <DGE.L>, sending the European food and beverage index <.SX3P> up 1.9 percent and on track for its strongest day this year.

Higher oil prices propped up the energy sector, the worst performing this year, with majors such as BP <BP.L> and Total <TOTF.PA> leading the charge. [O/R]

Underscoring the broadly upbeat mood across markets, safe-haven utilities <.SX6P> were the only sector in the red by mid morning, falling 0.1 percent.

Among top STOXX fallers were William Hill <WMH.L> and Zalando <ZALG.DE>, both down more than 2 percent following downbeat broker notes.

(Reporting by Danilo Masoni; Editing by Robin Pomeroy)