EU Bailout Rumor Sends Euro Bank Stocks to the Moon

The Dow (NYSE:DIA) surged more than 200 points in the final hour of trading on Tuesday, as traders proved once again how emotional they are when it comes to the Eurozone.  The most recent report now indicates that Germany and France have agreed to increase the EU bailout fund.  Stop me if you’ve heard this before, but the headline, released just in the nick of time by The Guardian, eases concerns over the sovereign debt crisis.

Joe Saluzzi, co-manager of trading at Themis Trading said, “This news is nothing really new.  I’m tired of headlines coming out in the final hour.  Is this news even fixing anything and is it sustainable?  Maybe to the close, but until tomorrow, who knows?  Unfortunately, this market is still very headline driven.”  All 10 S&P 500 (NYSE:SPY) sectors turned higher, led by banks.

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Deutsche Bank (NYSE:DB) and Barclays (NYSE:BCS) are both European banks that closed more than 5% higher on the EU bailout news.  Other Euro banks such as UBS (NYSE:UBS) and Lloyds Banking Group (NYSE:LYG) closed about 3% higher.  Royal Bank of Scotland Group (NYSE:RBS) gained nearly 4%.

Bank of America (NYSE:BAC) closed more than 10% higher on Tuesday after posting third quarter earnings.  Bank of America reported that profits totaled $6.2 billion, ($0.56 per share), compared to a loss of $7.3 billion ($0.77 per share) last year.  However, the $6.2 billion in profits included $4.5 billion (pretax) in positive fair value adjustments on structured liabilities, a pretax gain of $3.6 billion from the sale of shares of China Construction Bank (CCB), $1.7 billion pretax gain in trading Debit Valuation Adjustments, and a pretax loss of $2.2 billion related to private equity and strategic investments, excluding CCB.  Goldman Sachs (NYSE:GS) also traded higher, despite reporting its second quarterly loss since 1999.

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Like Bank of America’s (NYSE:BAC) inflated earnings, investors need to be cautious of inflated EU bailout rumors.  The Guardian report says that the bailout amount is to total 2 trillion euros.  However, many investors are skeptical as this is not the first rumor to confuse investors.  Another source reported to Dow Jones that the 2 trillion bailout number is totally fabricated, and the bailout amount is still being discussed.

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