Britain's blue-chip shares fell 2 percent by midday on Tuesday, with financials weighing heavily, as capital raising concerns at HSBC and job losses at Barclays threw a spotlight on the ailing banking sector.
Banks faltered after Morgan Stanley said HSBC (HSBA.L), Europe's biggest bank, may have to raise as much as $30 billion in capital and halve its dividend.
By 1209 GMT, the FTSE 100 was down 88.41 points at 4,130.74. The UK benchmark is down 2.8 percent so far this month and fell more than 31 percent last year, its worst annual drop since its launch in 1984.
Morgan Stanley said HSBC's earnings will fall this year and its relative capital position is not as strong as in the past. [ID:nLE245760]
"The HSBC news is a catalyst for more selling," said John Prior, an associate director of market strategy at Killik & Co.
"The situation is a big concern. We are telling our clients to come out of HSBC at the moment. We just think with this issue hanging around there's not much upside for the price," Prior added.
Barclays was the biggest loser among banks on the FTSE 100 down 11.7 percent after announcing a further 2,100 job cuts to add to the 2,500 job losses announced on Tuesday. [ID:nWLA4976]
The mood on the banking sector was also darkened by news that Deutsche Bank (DBKGn.DE) racked up a loss of about 4.8 billion euros in the final quarter of 2008 alone in a surprise profit warning that sent its shares tumbling. [ID:nLE146935]
HSBC slipped 7.9 percent, contributing to a fall of 7.8 percent on the banking index .FTNMX8350.
Royal Bank of Scotland (RBS.L), HBOS (HBOS.L) and Standard Chartered (STAN.L) also slipped, losing between 4.2 and 8.4 percent.
Britain on Wednesday launched a 20 billion pound ($29.2 billion) scheme to guarantee existing loans to small and medium-sized companies.
