The pan-European STOXX 600 closed down 0.2 percent with the banking sector falling 0.7 percent. HSBC shares fell 1 percent after it reported disappointing earnings due to rising expenses from investments in a new growth strategy and a $765 million provision against sale of US mortgage securities.
"On revenues, we note on the positive side that loan growth continues to be very strong," Goldman Sachs analysts said in note. "On the negative side, we note that the group has lowered its expected net interest income sensitivity to US$ rates." Banco BPM shares fell 6 percent after the Italian lender's earnings missed forecasts due to higher than expected loan loss provisions, and its capital buffer suffered due to sharp falls in Italian government bonds during May's political upheaval.
Overall Europe's banks have performed well in the second-quarter earnings season, with stronger than expected earnings growth and profitability. M&A disappointments hit some shares hard. Linde sank 7.5 percent after it said regulators may ask it and its US rival Praxair to sell more assets in order to get antitrust approval for their merger.
"The probability for the merger has decreased," Baader Helvea analysts said in a note, adding however they still believe it will close successfully. The heavyweight stock pulled the chemicals sector index down 1 percent.
Germany suffered the biggest drop in industrial orders in 1-1/2 years, driving industrial giants Siemens and Thyssenkrupp down 0.4 percent and 0.9 percent. British serviced offices group IWG also suffered from M&A pain, sinking 20.5 percent to the bottom of the STOXX 600 after the firm ended takeover talks with private equity firms Terra Firma, TDR and Starwood.
A target price hike from Morgan Stanley boosted Galapagos shares up 4.7 percent, the best performance of the STOXX 600. Overall second-quarter earnings for MSCI Europe firms are expected to grow 7.8 percent year-on-year in euro terms, while they are expected to grow 2.5 percent year-on-year for MSCI EMU.
Europe remains an unpopular region for stocks investors, though some indicated the outflows could turn soon as companies deliver good results and analysts revise their earnings expectations up.