European shares closed lower yesterday, falling for the sixth consecutive session, with financials hammered as heavyweight HSBC slid on worries it will need to raise money to shore up its balance sheet.
The FTSEurofirst 300 index of top European shares fell 4.3 per cent to 804.17 points, its lowest close in three weeks.
HSBC closed eight per cent lower after Morgan Stanley analysts said the bank is likely to halve its dividend and may need to raise up to $30 billion in a rights issue.
"It's a combination of many things coming at once," said Gareth Williams, European equity strategist at ING. "There's the banking sector, US retail sales, the bankruptcy at Nortel. Arguably, all this should be in the price, but coming together it's raising concerns about the scale of the bad news in the quarter."
The pan-European index fell more than 44 per cent in 2008, battered by a credit crisis that helped to tip several major economies into recession.
There was more evidence yesterday of economic weakness. The German economy contracted sharply in the final quarter of 2008, and eurozone industrial output plunged in November, boosting expectations the European Central Bank will make a deep cut to interest rates today.
Mr Williams said the focus was now more on fourth-quarter results than on the ECB decision.
Crude prices slipped 3 per cent, as US stockpiles rose. This hurt oil majors such as BP, which closed 5.2 per cent lower.
European shares, already deep in the red, fell further after news that US retail sales fell 2.7 per cent in December. Data for October and November was also revised downwards.
Nortel Networks Corp, North America's biggest telephone equipment maker, filed for bankruptcy on Wednesday, hoping to save a once high-flying business whose decline has accelerated with the global economic crisis.
"Our detailed study of HSBC's capital and asset quality position reinforces our belief that it will have to halve the dividend and raise major capital in 2009," Morgan Stanley analysts Anil Agarwal and Michael Helsby said in a note.
Deutsche Bank tumbled 9.1 per cent after saying it has racked up a loss of about €4.8 billion ($6.4 billion) in the final three months of 2008 alone.
Royal Bank of Scotland fell 18 per cent. Other banks to fall included BNP Paribas, Banco Santander and Credit Suisse, down between 5.7 and 8.6 per cent. Britain's Barclays said it is cutting more UK-based jobs in its retail and commercial banking business, which a person familiar with the matter said is likely to mean a further 2,100 jobs will go. Its shares closed 14.4 per cent lower.
HBOS and Lloyds fell 13.5 and 11.9 per cent respectively. HBOS will delist this week after Lloyds takes it over. It was confirmed after the market closed that its replacement in the FTSEurofirst 300 will be Belgian telecoms firm Mobistar.
Miners featured among Europe's biggest losers, falling along with metal prices, hammered by renewed worries over the outlook for the global economy.
Anglo American, Antofagasta, BHP Billiton, Eurasian Natural Resources Corp., Rio Tinto and Xstrata fell between 7.2 and 12.3 per cent.