European banks shored up their stockpile of capital on Monday amid concerns about a rising flood of bad loans from the spreading economic storm.
Banks around the region already have taken billions of euros in writedowns on their investments in complex structured
credit products, but the
financial crisis is increasingly spreading to the real economy, creating a double-whammy for earnings as companies cut borrowing and struggle to repay business loans.
Lloyds Banking Group said Britain's requirement for banks to hold enough capital to withstand a "severe" downturn was key to its decision to insure 260 billion pounds of risky assets with the UK government.
The deal, announced on Saturday, will limit losses if the
economy keeps deteriorating, but it will give Britain a stake of up to 77 percent in Lloyds, and sent Lloyds shares skidding 14 percent before the stock reversed losses.
In Switzerland, the game of musical chairs in top boardrooms continued as Credit Suisse Chairman Walter Kielholz moved from Switzerland's No.2 bank to take the same role at troubled reinsurer Swiss Re, a step criticized by some investors as a failure to break with the past.
Credit Suisse Vice-Chairman Hals-Ulrich Doerig will move up to lead the bank's supervisory board.
Swedish financial group Swedbank scrapped plans for a dividend for 2008 due to a worsening economic environment, particularly in the Baltic states and
Ukraine, where sharp recessions are likely to lead to a big increase in loan losses.
Swedbank Chairman Carl Eric Stalberg said the bank was very well capitalised and markets initially cheered the move to bolster the capital base, though worries about the outlook in eastern Europe weighed.
"Things have got so bad in the Baltics that they have got to do this, and that is negative," said Henrik Schmidt, analyst at Keefe Bruyette & Woods.
Swedbank made a six-fold increase in loan loss provisions in the fourth quarter mainly due to contracting Baltic economies.
Investors have also been worried about eastern Europe business at other lenders, such as Italy's UniCredit and Germany's Commerzbank. Commerzbank said on Monday that it was pumping 4 billion euros (3.64 billion pounds) into recently acquired Dresdner Bank to shore up its regulatory capital.
Another big player in
emerging markets, HSBC, was also under pressure on Monday, losing as much as 11 percent as short sellers dumped the stock in anticipation of buying it back after the bank completes its $17.7 billion (12.7 billion pound) rights issue.
"With HSBC there are worries about credit quality ... There is not a whole lot that is bright news out there anywhere today," said Bernard McAlinden, strategist at NCB Stockbrokers.
"There are doubts everywhere that policy response cannot actually stabilise the global economy."
Not even a more optimistic outlook by the chief executive of Germany's biggest bank, Deutsche Bank, was able to give a boost to the European banking sector, as the DJ Stoxx sector index fell 2.1 percent.
Deutsche's Josef Ackermann said the positive business trend his bank had seen in January continued last month.
"By the end of January, we had revenues of 2.8 billion euros. February largely confirmed this development," Ackermann told German business daily Handelsblatt.
Shares in Belgium-based Fortis gained 21 percent after the Belgian government and BNP Paribas revised the terms of the financial group's break-up.
The European Union is set to back the International Monetary Fund's (IMF) call for a doubling of its funds as a growing number of countries turn to it for help, ahead of the Group of 20 (G20) summit.
The IMF acknowledged last week that its warnings before the crisis were insufficient.
CAPITAL HEADACHELenders and their national governments are still fretting about how best to tackle the capital problems at the heart of the
financial crisis, which are sapping confidence and keeping banks from lending, compounding the slump.
Financial officials are trying to hammer out a common approach.
Top executives of leading U.S., Japanese and European banks will meet in London this month to discuss regulation and other issues key to the future of the financial system, two industry sources said.
The British government will host the meeting on March 24, after a gathering of the G20 finance ministers in London this weekend and ahead of a summit of G20 leaders there on April 2, according to the sources, who declined to be identified because the meeting had not been made public.
The meeting agenda was expected to include capital adequacy guidelines and other regulatory issues, the sources said.
The crisis is continuing to keep regulators busy.
Iceland's financial watchdog said on Monday it had taken over investment bank Straumur Burdaras, the last major Icelandic bank left standing after the country's financial collapse in October.
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