* FTSEurofirst 300 down 0.1 pct
* Deutsche heads for biggest one-day drop in 10 months
* High market valuations need to be justified by earnings
By Toni Vorobyova
LONDON, Jan 20 European equities steadied on
Monday, pegged back from 5-1/2 year highs by a retreat in
financial shares after a surprise loss from Deutsche Bank
It was the first of the region's lenders to report fourth
Deutsche - which had not been due to release results until
Jan. 29 - fell 4.0 percent after unveiling a fourth quarter loss
of 1.15 billion euros ($1.56 billion) due to heavy litigation
and restructuring costs, as well as weakness in fixed income
Debt sales and trading revenues fell 31 percent,
year-on-year, raising concerns about performance at other banks
with a large fixed income business. Underscoring the problems in
that area, a source told Reuters that Swiss bank UBS
will begin outsourcing its fixed income trading platform to two
technology groups in an attempt to save costs.
The STOXX Europe 600 Banking Index dropped 0.7 percent
, making it by far the worst performing sector.
"The figures of Deutsche Bank are surprising and there is no
end to be seen, and therefore we are kind of critical about the
conditions of the banking sector," said Oliver Roth, head trader
at Close Brothers Seydler.
"I think we have seen the bottom of the crisis, but I don't
see the end of the crisis. Therefore I see much more potential
in other sectors than banks."
The impact, however, was felt more broadly, with Deutsche's
loss following on from a profit warning from oil major Shell
last week and adding to concerns that the earnings
season will not deliver the strong results needed to justify
high equity valuations and to enable further market gains.
"The market is trading on valuations which are getting
closer to levels where any sort of earnings disappointment is
going to be increasingly problematic," said Ian Richards,
strategist at Exane BNP Paribas.
European equities are trading at around 13.6 times their
expected 12 month earnings - around their most expensive in nine
years, according to Thomson Reuters Datastream.
The pan-European FTSEurofirst 300 index was steady at
1,345.05 points by 1135 GMT, holding below last week's 5-1/2
year peak of 1,346.23 points.
The DAX lagged other regional bourses, down 0.2 percent as
Deutsche's drop took 19 points off the German index.
The move put Deutsche on track for its biggest one-day fall
since March 2013, with Volumes at 148 percent of the 90-day
daily average by mid-session, even as activity more broadly was
subdued due to a public holiday in the United States.
On average, European companies could miss fourth quarter
earnings consensus by 1.5 percent, according to StarMine
SmartEstimates, which focus on the up-to-date predictions form
historically most accurate analysts.
However, with SmartEstimates predicting a 3.9 percent
year-on-year drop in fourth quarter earnings, the bar has been
set relatively low for any possible upside surprises.
"On balance, we think this season will be an improvement in
terms of earnings surprises compared to the third quarter
season. Most of this expected improvement is because consensus
revised down earnings estimates very substantially while the
economic backdrop remained broadly unchanged," analysts at
Goldman Sachs said in a note.