BlackRock Gets Thumped by Italy, Stock Cautiously Recovers
Shares of BlackRock Inc. (NYSE:BLK) slid yesterday as did the broader markets on concerns about the European debt values as Italian bond yields skyrocketed. The S&P 500 Index was down 3.7%, with financial sector stocks leading the fall. BlackRock’s competitors, Charles Schwab (NYSE:SCHW) and State Street (NYSE:STT), also registered declines of more than 5%. Fears that the debt crisis of Europe has plagued its major economy Italy, and the anxiety about increased potential risks to world economy were palpable as stocks plummeted, suffering one of the worst one day declines in this year.
See our complete analysis of BlackRock stock here
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Last month, Blackrock had increased investment in Italian bonds, in search for higher returns, as the outlook on Euro zone improved. [1] According to Bloomberg, the company is “comfortable” with the level of intermediate Italian bond holdings even as yields go through the ceiling, threatening collapse of the government and forcing the country to seek a bailout. [2] We believe that Italian bonds that seemed “attractive” to the company might not actually prove to be so.
Some fear that the Euro disintegration is inevitable as a bailout for Italy, whose debt load is the fourth largest in the world, seems unaffordable. A split in the Eurozone will increase chances of default by Italy, which will weigh down the financial sector due to accelerated debt write offs in following quarters.
Today, markets have somewhat pared off previous day’s decline as the country was able to sell some of its debt on slightly lower yields from the 7% threshold yesterday.
We are reviewing our price estimate for BlackRock, which is currently at $188 to reflect its Q3 earnings and the current uncertainty in the market. The price estimate is 20% ahead of the current market price.
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Notes:- BlackRock Is Buying Italian Debt Amid Improved Outlook, Bloomberg Businessweek [↩]
- BlackRock’s Rieder Comfortable With Holding Italian Debt Amid Crisis, Bloomberg [↩]