LONDON (MarketWatch) -- European banks took another mauling on the stock market Friday as global efforts to restart the credit markets and avoid a severe economic downturn continued to fall short.
U.K. institutions were among the worst hit as they prepare to raise capital. Among the biggest decliners were HBOS which slumped 18%, Belgium's KBC Group , down 12%, Barclays , which lost around 15% and Royal Bank of Scotland , which gave up 18%.
U.K. banks are examining options for lifting their capital to the levels the government wants. The U.K. banking unit of HSBC Holdings did so late Thursday through an internal transfer of 750 million pounds ($1.3 billion) of capital. HSBC shares were down 7% Friday.
But Barclays, Lloyds TSB , Royal Bank of Scotland and HBOS, which has agreed to be bought by Lloyds, will have a tougher time.
The banks are likely to prefer raising capital from shareholders so they can avoid the high cost and other restrictions that would come with taxpayers' cash.
Barclays said Friday that it's considering a number of options to increase its capital, including tapping the government.
U.K. Prime Minister Gordon Brown, writing in the Times (of London) newspaper, called for other countries to follow the U.K. in providing capital to firms, saying every bank around the world "must meet capital requirements that ensure confidence."
Authorities in the Netherlands did just that late Thursday when they announced a fund worth at least 20 billion euros ($27 billion) would be made available to boost capital and provide liquidity for the sector.
Dutch rescue plan
"The Dutch government is committed to make capital available to each financial enterprise in the Netherlands that is fundamentally sound and viable," the country's central bank and finance ministry said in a joint statement.
As in the U.K., any money will come with a string of conditions, including restrictions on executive pay, government representation on the executive board and guarantees on returns.
Dresdner Kleinwort analyst Jaap Meijer said the bailout could dilute existing shareholders by as much as 37% if it is done through the issue of common shares, though if the government also changes restrictions on other types of capital the dilution could be less.
On top of that, Dutch banks may face a 1.6 billion euro bill to cover deposits held at collapsed Icelandic bank Landsbanki, Meijer added.
Shares in Dutch insurance and banking firm ING Group fell 7.3% in afternoon Amsterdam trading.
Among other countries taking action, the Reserve Bank of India cut the percentage of deposits banks must keep with the central bank. And U.S. authorities are considering radical new measures to shore up markets, including guaranteeing billions of dollars in bank debt and insuring all U.S. bank deposits for a temporary period, according to a report in The Wall Street Journal. See full story.
Also making investors nervous is the upcoming auction of collapsed investment bank Lehman Brothers' liabilities, which begins at 10:30 a.m. eastern time.
The auction will determine the amount that must be paid out by banks and other financial firms that sold protection against Lehman defaulting on its loans in the credit default swaps market.
Reuters reported the sellers of that protection could be facing losses of around 90% on the value of Lehman's debt, while the worldwide bill for the sector could be close to $400 billion.
Among other banking stocks falling heavily Friday were Deutsche Bank and Deutsche Postbank both down around 14%. Deutsche Bank recently agreed to buy a stake in Postbank, but stopped short of a full takeover offer, leaving the retail bank exposed to the weak economic conditions.
Spain's Banco Santander , meanwhile, lost around 9%.
Santander has been a relatively strong performer since the start of the crisis, though its deal earlier this year to buy Alliance & Leicester will increase its exposure to U.K. mortgage lending.
Shares in Alliance & Leicester dipped 2.5%.
Among the other relatively strong performers was UBS , which fell 2.4%.
The group was one of the worst hit banks at the start of the credit crisis. But its shares have been more stable in recent weeks after it cut its exposure to risky assets and said it should bounce back to a small profit in the latest quarter.
