By Amanda Cooper
LONDON, April 21 (Reuters) - European shares fell on Monday,
led by a drop in shares of Royal Bank of Scotland <RBS.L> ahead
of a widely expected and hefty rights issue and Swiss food group
Nestle <NESN.VX> after a disappointing trading update.
Banks were the largest drag on the European market, after
RBS confirmed in a brief statement that it was considering a
rights issue, details of which could come on Tuesday.
People familiar with the matter have said the bank will seek
to raise up to 12 billion pounds ($23.9 billion) and RBS shares
fell by 3 percent.
Adding to the negative tone in the financial sector were
results from Bank of America <BAC.N>, the largest U.S. retail
bank, which reported a 77 percent drop in quarterly profit after
$5 billion in writedowns and credit-related costs.
The FTSEurofirst 300 <> index of top European shares
fell 1.06 percent to 1,311.82 points.
The index gained more than 3 percent last week after a
flurry of positive earnings surprises on both sides of the
Atlantic as the reporting season continues.
"Last week was a good week -- slightly surprising -- but
good, so a bit of profit-taking today is no shock," said Philip
Isherwood, a European strategist at Dresdner Kleinwort.
"I guess the feeling is that if you were going to warn, by
now you should have warned and therefore, the first-quarter
results season feels benign ... and that's supportive."
Within the banking sector, Barclays <BARC.L> lost 3.5
percent, Societe Generale <SOGN.PA> fell 1.7 percent and Credit
Agricole <CAGR.PA> shed 3.4 percent.
The sector also appeared to take no heart from a Bank of
England plan to lend banks up to 50 billion pounds to help
operations during the credit squeeze.
JPMorgan said in a report that it estimates the capital
shortfall for the four large UK banks -- RBS, HBOS <HBOS.L>,
Barclays and Lloyds TSB <LLOY.L> -- at nearly 37 billion pounds.
"If UK banks do nothing, then shrinking balance sheets could
imply 25-35 percent loss of earnings for the sector, according
to our analysis," JPMorgan analyst Carla Antunes da Silva said
in the report.
The bank estimates a capital shortfall of 13 billion pounds
at RBS, 11.4 billion at HBOS, 8.1 billion at Barclays and 4.3
billion at Lloyds TSB.
Outside the banks, Nestle was among the heaviest weighted
decliners, falling 1.7 percent as a jump in first-quarter sales
disappointed some investors and a weak dollar eroded gains in
volume and pricing.
Around Europe, Britain's FTSE 100 <> fell 0.06
percent, while Germany's DAX <> lost 0.8 percent and
France's CAC <> shed 1.0 percent.
The commodities-heavy FTSE 100 was helped by gains in energy
shares BP <BP.L>, Royal Dutch Shell <RDSa.L> and BG <BG.L>,
which rose by more than 1 percent, tracking the oil price which
stayed within striking range of a record $117.40 a barrel.
The FTSEurofirst 300 shed 16 percent in the first quarter as
the world's top banks booked multi-billion dollar writedowns on
assets backed by deteriorating U.S. mortgage products, but has
rallied enough in April to put it on track for its best month
since September 2005.
Analysts say earnings shocks and evidence of a U.S.
recession could prevent any rallies from lasting very long.
"We've rallied quite strongly from the lows in the first
quarter and now we're tending to level off," said Darren Winder,
head of macro strategy and research at Cazenove.
"Investors are looking for new momentum from the earnings
season and though results are overall probably better than
people had expected, and profits still resilient, there's lots
of scepticism that this will continue," he said.
Among gainers in Europe was Swiss drugmaker Novartis
<NOVN.VX>, which jumped 3.1 percent as first-quarter net profit
beat forecasts, boosting the pharmaceutical sector.
GlaxoSmithKline <GSK.L> gained 1.1 percent, while AstraZeneca
<AZN.L> rose 0.8 percent and Roche <ROG.VX> rose 0.5 percent.
(Additional reporting by Dominic Lau and Sitaraman Shankar;
Editing by David Cowell)
