Germany's €10 billion injection into Commerzbank and worries of big losses at two other banks on Friday underscored the strain on capital and the tough industry outlook facing Europe's lenders.
Commerzbank shares fell as much as 15% as analysts questioned the merits of its purchase of rival Dresdner Bank, which required the government to part-nationalize it by taking a 25% stake, diluting shareholders' investments.
France's Natixis tumbled 7% after a report it may need more capital and post a wider-than-forecast 2008 loss of up to €2 billion ($2.7 billion).
Deutsche Postbank dipped 4% after it said it will report a big 2008 loss after scrapping its stocks portfolio triggered big hidden losses.
UK banks outperformed rivals, led by an 8% rally by HBOS as investors bought into the stock ahead of the expected completion of its takeover by Lloyds TSB next week. Lloyds shares were up 4.6%.
Commerzbank shares were last down 6.3% at €4.92 as several brokers cut their recommendations and price targets on the stock.
“Becoming partially nationalized clearly bears the risk ... that Commerzbank will become less independent regarding its future business strategy,” Equinet analyst Philipp Haessler said.
The government will take two seats on Commerzbank's supervisory board but promised a hands-off approach. The Finance Ministry said there had been no requests from other banks for the government to take stakes in them.
It is the first time Berlin has partially nationalized a major bank in response to the global financial crisis and follows similar moves by London and Washington.
The latest injection adds to €8.2 billion provided earlier by the state to Commerzbank and has been made as the lender faces more big writedowns in the fourth quarter and to protect it in an “economically stormy environment.”
Shares in Deutsche Bank, the country's biggest bank, fell 3.7% to €24.8. It is taking a stake in Deutsche Post, and could also need to raise capital if markets remain tough, analysts say.
Natixis could post a loss of between €1.5 billion and €2 billion for last year and may need fresh capital, according to a report in Les Echos.
The bank declined to comment on the reported loss, and denied another capital increase was planned.
Analysts had expected Natixis to post a net loss of €1.5 billion, based on a Reuters data average of 13 analysts' estimates.
“These fresh losses could well necessitate a further injection of capital before the presentation of earnings at the end of February,” one Paris based share trader said.
Natixis has been hit hard by the credit crisis and needed a €3.7 billion rights issue in September to boost its solvency ratio.
More European banks are expected to need to raise capital in the early part of this year as bad debts from corporate and consumer loans rise as recession bites.
Dutch insurer Eureko, partly owned by Rabobank, said on Friday it is talking to its shareholders about a capital injection, but said a report it would get €1 billion was premature. (Reuters)