Erste Group Bank, the Austrian lender, led European equities lower after announcing an unexpected rights issue.

The central and eastern Europe focused bank said it aimed to raise €660m through the sale of new shares to help repay the €1.76bn that it received during the financial crisis to help shore up its balance sheet.

“We had the redemption of the participation capital in our numbers already but had not expected a rights issue and the market will be disappointed at this,” said Jason Napier at Deutsche Bank.

Shares in Erste fell 8.5 per cent to €20.09 while domestic rival Raiffeisen International, which borrowed €2.5bn in participation capital during the crisis, fell 4.9 per cent to €22.73 on concerns that it may also announce a share dilutive rights issue.

Banks were broadly weaker, leaving Norway’s DNB down 5.2 per cent at NKr85.70, while Spain’s Santander fell 2.3 per cent to €4.84 and Belgian financial services group KBC lost 4.8 per cent to €27.37.

Danske Bank, which was told by Denmark’s financial watchdog last week that it had underestimated its risk weightings, fell 2.4 per cent to DKr97.20.

The pan-European FTSE Eurofirst 300 index fell 1.6 per cent to 1,114.19 and now trades 1.8 per cent lower than when it started the year.

The index is down nearly 13 per cent from this year’s peak of 1,258.09, which it hit only a month ago.

Kabel Deutschland climbed 1.7 per cent to €85.50 after Vodafone offered €87 a share for the German cable company. The cash offer valued Kabel at €7.7bn.

Frankfurt’s Xetra Dax index fell 1.2 per cent to 7,692.45 in spite of data from Germany’s Ifo institute that showed business confidence had increased in June.

Finnish mobile handset maker Nokia, which gained 9.1 per cent during last week on bid speculation, gave back 4 per cent to €2.88.

Retailers were lower after Citigroup downgraded Germany’s Metro to sell from neutral due to weaker growth prospects in emerging markets.

Its shares fell 5.5 per cent to €23.55 while France’s Carrefour lost 3.2 per cent to €19.76 and Belgium’s Colruyt shed 2.9 per cent to €37.34.

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