Royal Bank of Scotland shares plummet, other banks slide
European shares turned lower on Monday afternoon, with Royal Bank of Scotland dropping 48%, as investors continued to fret about profit and capital trends in the sector.
The pan-European Dow Jones Stoxx 600 index (ST:SXXP: news , chart , profile ) fell 1.1% to 190.93.
Overall, the U.K. FTSE 100 index (UK:UKX: news , chart , profile ) fell 0.7% to 4,117.96, the German DAX 30 index (DX:1876534: news , chart , profile ) declined 0.6% to 4,340.24 and the French CAC-40 (FR:1804546: news , chart , profile ) index fell 0.5% to 3,002.92.
Wall Street shares closed higher on Friday, Markets in the U.S. are closed Monday for Martin Luther King Jr. day. See U.S. Market Snapshot.
Although the banking sector initially traded higher after the U.K. government moved to support the U.K. financial sector and Barclays reassured on profit trends late Friday, shares turned lower as the session went on.
Royal Bank of Scotland (UK:RBS: news , chart , profile ) shares slumped 47.8% in London with investors unsettled by the lender stating that it could be on track to produce the biggest annual loss in U.K. corporate history.
RBS said that it could report a loss of up to 28 billion pounds ($41.6 billion) for the year as it also announced plans to restructure its recent rescue package with the U.K. government. See full story.
The government said that it will increase its stake as part of a wider package of measures designed to help the U.K. financial sector. See full story.
"What the government is doing is guaranteeing mortgage debt -- which is a positive thing -- but it's not really forcing banks to take the junk off the balance sheet," noted Peter Dixon, strategist at Commerzbank.
"I think that what we've done today is postpone the inevitable and I think if I was an investor in banking stocks I would be very skeptical that this is the end of the line for government intervention," he added.
More banking losses
Other banks also fell sharply. Lloyds Banking Group declined 35% on the first day of trading after the merger of Lloyds TSB and HBOS.
"The RBS statement shows the effects of the downturn on credit quality and the dilution this causes. [There is] negative read-across to other names, especially Lloyds TSB in our view," said analysts at Nomura.
Allied Irish Banks (UK:ALBK: news , chart , profile ) dropped 59.3%. Last week, shares in the bank fell after the Irish government effectively nationalized Irish lender Anglo Irish Bank (UK:ANGL: news , chart , profile ) .
Credit Suisse shares dropped 11.1% and HSBC Holdings shares fell 12%.
Barclays which had a bright start to the session, fell 10%.
On Friday -- the day the short-selling ban on the U.K. financial sector was lifted -- the lender's shares slumped 25%. Barclays said late Friday that it didn't know why its shares tumbled and that its profit for 2008 will likely exceed most analysts' forecasts.
Deutsche Bank shares fell 12.4%. Morgan Stanley reiterated its underweight stance on the stock and said that it believes the lender still needs to reduce leverage, with material risk of dilution.
BNP Paribas shares dropped 9.2%. Over the weekend, Italian newspaper Il Sole 24 Ore reported that Societe Generale (FR:013080: news , chart , profile ) is not considering mergers within Europe. Societe Generale shares declined 8%.
