Shares in Dutch bancassurer ING Group NV fell for a second day on Tuesday, as analysts said a pending 7.5 billion euro rights issue was likely to result in a 50 percent dilution for current shareholders.
ING's struggles rippled across the European banking sector, weighing on shares of other state-aided banks such as Royal Bank of Scotland, Lloyds Banking Group and KBC Group.
ING shares were down as much as 14 percent in the first hour of trading before rebounding sharply in a volatile session.
At 1004 GMT (6:04 a.m. EDT) shares were off 3.9 percent at 9.20 euros. The stock has lost about 6 billion euros in market value since Friday's close, including Monday's 18 percent decline.
ING said on Monday it would split in two units, repay some of its Dutch state aid early and launch the massive rights issue, all part of its restructuring talks with the European Union.
However, ING Chief Executive Jan Hommen stressed at an investor meeting Tuesday that the bank has four years to complete its restructuring and was in no rush to sell assets, preferring to hold out for the best prices.
Analysts have questioned the reasoning for the rights issue and cut their price targets substantially.
KBC Securities analyst Dirk Peeters estimated in a note on Tuesday that the rights issue would be done at a range of 7.5 euros to 8.5 euros per share, indicating dilution of 45 percent to 50 percent and an increase in outstanding shares to 3 billion.
KBC set a price target of 8 euros per share, at the low end of the range of new targets analysts have set since Monday.
Cheuvreux and Keijser Capital downgraded the stock and UBS removed it from the firm's European key calls list.
We note that the share issue is expected to be below current book value and as yet we do not have a complete picture of future net income on existing businesses, Keijser analyst Nico van Geest said in a research note.
In the short term, the sharp decline in the shares will actually save ING money. Its deal to repay 50 percent of its state aid includes a premium that is linked to the share price, with the minimum premium of 333 million euros rising if the stock passes 11.16 euros per share.
The worst-case scenario, with the stock at or above 12.40 euros per share, the premium would top out at 691 million euros.
(Reporting by Ben Berkowitz; Editing by Jon Loades-Carter and Karen Foster)