European shares dropped on Wednesday, falling for the sixth consecutive session and turning negative on the year on renewed fears surrounding banks' balance sheets.
Deutsche Bank tumbled 9 percent after saying it has racked up a loss of about 4.8 billion euros ($6.4 billion) in the final three months of 2008 alone, blaming troubled markets.
HSBC tumbled 8.5 percent 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.
"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.
Other leading European banks also took a beating, with Societe Generale down 7.2 percent and Credit Suisse down 6.5 percent.
"In the first week of the year, people forgot about banks' woes for a moment. But now they are back in the spotlight," said Natixis analyst Pascal Decque.
At 1119 GMT, the FTSEurofirst 300 index of top European shares was down 1.2 percent at 829.88 points.
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 were down 13.2 percent.
The DJ Stoxx banking index, which plummeted 65 percent in 2008, has lost 3 percent so far in 2009, underperforming the FTSEurofirst 300, which is down 0.3 percent.
Investors were also digesting news that Citigroup moved towards dismantling itself as it agreed to merge its Smith Barney brokerage with Morgan Stanley's wealth management unit and is expected to make further asset sales to raise capital.
Global bellwether General Electric fell more than 5 percent on Tuesday after an analyst said the conglomerate's profit could rely heavily on tax benefits when it reports results next Friday.
EARNINGS MINEFIELD
"The first quarter is a minefield, as a lot of adjustments on corporate result forecasts still have to be made. The consensus still points to flat 2009 profits compared to 2008, but they will probably be halved compared to 2007," said Romain Boscher, head of equity management at Groupama Asset Management in Paris.
"Earnings will plunge, but that's not all. We will also see a raft of negative exceptional items, such as impairments, underfunded pension funds, rising charges and the need to recapitalise," he said.
"I don't see how the market could rise with such a dismal newsflow. At best, stocks will move sideways, but I think that the most likely scenario is that the market will continue to correct, and will revisit the lows before a rebound during second half of the year."
Miners also featured among Europe's biggest losers, falling along with metal prices, hammered by renewed worries over the outlook for the global economy.
BHP Billiton dropped 3.4 percent and Xstrata fell 4.2 percent.
Cement maker HeidelbergCement plunged 10 percent as traders pointed to market talk it may carry out a capital increase to beef up its balance sheet. The company declined to comment.
Around Europe, the UK's FTSE 100 index was down 1.9 percent, Germany's DAX index fell 1.5 percent and France's CAC 40 lost 1 percent.
Drug makers gained as investors turned to the safety of defensive stocks. AstraZeneca and Sanofi-Aventis were up between 0.6 percent and 1.3 percent.
Later in the session, investors will eye U.S. retail sales for December at 1330 GMT.
