LONDON Royal Bank of Scotland unveiled the biggest loss in British corporate history, overshadowing a second banking sector bailout and sending its shares reeling to their lowest in over a quarter of a century.
RBS said Monday it was on course to report a 2008 loss of up to 28 billion pounds ($41 billion) and that further hits from bad debts were inevitable, bruising the European banking sector, which fell 8 percent to a 13-year low.
News of RBS's record-breaking deficit came as the government announced a second support package for banks designed to counter recession by kick-starting lending to businesses and consumers.
The scheme failed to reassure investors, however, and RBS shares closed down 67 percent at 11.6 pence, having earlier slumped to 10 pence.
Other bank stocks also tumbled, with Lloyds Banking Group down 34 percent on the first day of trade following its takeover of HBOS last week.
Shares in Barclays lost 10 percent, reversing earlier gains after the bank responded to a 25 percent slide Friday by saying its 2008 profit was set to come in ahead of the 5.3 billion pounds currently penciled in by analysts.
Analysts said uncertainty over whether the government's rescue plan would have the desired effect had compounded the damage done by RBS's warning that the size and timing of future credit losses "cannot be predicted."
"The read across to other stocks is not great," said Simon Willis, banks analyst at NCB Stockbrokers. "How much capital is enough? The answer is nobody knows."
"The bottom line is that nobody knows whether the government's new proposals will work, or will be enough. They're short on detail in some respects."
As part of Monday's support package, Britain said it would swap preference shares it already holds in RBS for ordinary stock, raising the country's stake to near 70 percent from 58 percent but saving RBS from having to pay interest to the government for an earlier capital injection.
In a conference call with reporters, RBS chief executive Stephen Hester played down concerns the government's increased stake was a precursor to full nationalization.
"The UK government has made it very clear in October and again now that its preferred option is not to take into nationalization the banks," he said.
The latest support comes three months after the government provided 37 billion pounds in capital to RBS, Lloyds and HBOS.
Analysts at Nomura said there was still a risk that the government might take full ownership of banks as a radical means of restoring the flow of lending.
"We would suggest that if the latest set of measures proves insufficient, then the authorities are likely to feel that they have little alternative to full nationalization," they said.
In a further attempt to stimulate lending ahead of figures later this week that are expected to confirm Britain is in recession, the government said it would relax lending restrictions on nationalized mortgage lender Northern Rock.
The bank had been encouraging customers to remortgage elsewhere as part of a strategy to pay off a 26 billion pound emergency government loan.
Separately, London-listed HSBC, Europe's biggest bank, said Monday that it "cannot envisage" ever asking the British government for capital.
"HSBC has long been one of the world's most strongly capitalized banks and is committed to maintaining this position," the bank said in a statement. Its shares ended 6.5 percent lower at 501 pence, a 10-year low.
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(Editing by Dan Lalor)