Santander of Spain, regarded as one of the strongest banks in Europe and the biggest in the eurozone by market capitalisation, unsettled the markets on Monday with the surprise announcement of a deeply discounted €7.2bn ($9.2bn) rights issue to bolster its capital ratios.

Only weeks ago, senior executives of the acquisitive bank were boasting of their ability to buy other banks weakened by the global financial crisis and insisting that Santander itself did not urgently need more capital.

But by Monday, the pressure to match the capital strength of rival banks bailed out and recapitalised by their respective governments had become too much even for Emilio Botín, Santander’s pugnacious chairman, to resist.

Santander will issue 1.6bn new shares and ask shareholders to take part in a one-for-four rights issue priced at €4.50 a share, compared with a closing price on Friday of €8.34. The bank’s shares reacted to the news by dropping 4.7 per cent to €7.95 in late trading on Monday.

The issue, led by Merrill Lynch, is fully underwritten.

Mr Botín described the rights issue as a “superb investment opportunity for shareholders” but admitted that Santander was increasing its core capital ratio to 7 per cent from 6.31 per cent in the third quarter “in response to our higher expectations in the current economic environment”.

Santander previously said it would generate more capital from profits and by selling assets such as its 31 per stake in Cepsa, the Spanish fuel group, but said on Monday that it had decided to postpone the disposals until prices improved.

Three other Spanish banks – BBVA, Banco Popular and Banco Pastor – immediately denied they had any plans to follow suit by launching their own rights issues, although several banks have taken less drastic steps to boost capital, including the sale and leaseback of their own buildings.

Spanish banks and cajas, the unlisted regional savings and loans institutions, have been hard hit by the collapse of the Spanish housing market. Bad loan ratios are rising fast and the Bank of Spain, the central bank, is already pushing for mergers or takeovers to rescue the weakest cajas.

However, executives at the stronger Spanish banks argue that they are less vulnerable than many of their international peers because they engage mostly in low-risk retail banking, are barely exposed to toxic assets and have been obliged by regulators to build up billions of euros of generic bad loan provisions that are broadly equivalent to core capital but are not counted as such in the official statistics.

Santander, which has become a big presence on British high streets after three UK acquisitions and is taking over Sovereign Bancorp of the US, on Monday denied that the rights issue was to fund further acquisitions.