Santander raises 5.8 billion pounds

By Paul Day and Steve Slater

MADRID/LONDON (Reuters) - Spain's Santander (SAN.MC) launched a shock $9.2 billion (5.8 billion pounds) rights issue on Monday as traditionally strong banks joined ailing rivals in bolstering their capital in the face of recession.

The scale of a deepening global credit crisis was shown as the U.S. government raised its support for insurer AIG (AIG.N) to about $150 billion to prevent it collapsing, while U.S. mortgage funding provider Fannie Mae lost a record $29 billion.

By contrast, Europe's biggest bank HSBC (HSBA.L)OOO5.HK said third-quarter profits were up on a year ago as growth in Asia offset rising U.S. bad debts. It is confident Asia will continue to grow, but signalled it may take longer to turn round its U.S. business.

Santander, the euro currency zone's biggest bank, said it was not planning any more acquisitions after picking up several assets during the credit crisis, and has postponed asset sales due to poor market conditions.

It appeared to be fortifying itself as economies in Spain and Latin America deteriorate and analysts noted banks were storing up ever larger capital cushions against possible risks to come.

"There's a new norm for capital adequacy standards in Europe," said Simon Maughan, analyst at MF Global in London. "We're dealing with a deep and nasty (economic) cycle and they are not immune to it."

By 3:30 p.m. British time Santander shares were down 4.7 percent, the weakest performer in the DJ Stoxx European bank sector .SX7P, which was down 1 percent. HSBC shares dipped 1 percent.

HSBC, the biggest bank outside China and another European bank to outperform rivals during the credit crisis due to its capital and liquidity advantages, said it was comfortable with its capital position.