Financial News

LONDON (ShareCast) - Europe's leading exchanges pared losses in late dealings but still closed in the red, with banks sharply lower following the shake-up of Britain's banking sector and disappointing results from UBS (Virt-X: UBSN.VX - news) .

RBS (LSE: RBS.L - news) will not be allowed to pay dividends for the next two years and have to divest its insurance arm and a raft of other businesses to meet European rules after agreeing to join the UK government's asset protection (APS) scheme. The government is injecting £25.5bn plus a further £8bn is available if things get worse rather than better.

Lloyds Banking Group (LSE: LLOY.L - news) confirmed the City's worst kept secret that it will raise £21bn through a £13.5bn rights issue and £7.5bn swap of existing debt for contingent capital. The government will take up its rights, investing £5.7bn net of an underwriting fee to keep its stake in Lloyds at 43%. It will pay a £2.5bn break fee to avoid being tied into the APS. The EC also says it won't be able to pay some dividends on hybrid capital securities.

On current trading, chief executive Eric Daniels said the group is delivering in line with guidance in all key areas of the business, but still expects to report a loss before tax for 2009, excluding the impact of the £11.2bn credit relating to negative goodwill.

Swiss bank UBS made a third quarter loss of 564m Swiss francs but said it sees further progress in restoring the underlying profitability of the business in 2010.

The loss compares with a profit of 283m francs last year and came after accounting charges of 2.15bn francs. Excluding these accounting charges, the underlying pre-tax profit was 1.56bn francs.

Other banking shares were down in sympathy, including Societe Generale (GLE.NX - news) , BNP Paribas (BNP.NX - news) and Credit Agricole (ACA.NX - news) .

The Dax closed 77 points lower in Frankfurt at 5,353, while the Cac was 55 points down at 3,584. The Swiss market dropped 78 points to 6,213.

Elsewhere, German carmaker Bayerische Motoren Werke fell on news that its third-quarter net profit slumped 74% to €78m.

In economic news, the European Commission said it expects the unemployment rate in the eurozone to stand at 10.7% in 2010 and rise to 10.9% in 2011.