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Bank Losses Continue, Russia's VTB Wins Extra Capital

The Russian government is giving state-controlled banking major VTB 200 billion rubles ($5.54 billion) in extra capital, a banking source said on Wednesday, as the squeeze continued on lenders around the globe.

In Iceland the only major bank not yet taken over by the state said it lost 616 million euros ($792 million) before taxes in the fourth quarter.

And Nordic bank Nordea said it was debating whether to join a government scheme to raise hybrid capital, according to media reports.

The VTB injection is part of a second wave of state support for the struggling Russian banking sector, the total package of which has been valued at between $27 billion and $40 billion.

VTB's London-traded stock was up 8.6 percent to $1.26 by 1020 GMT. Its Moscow-traded stock rose 6.8 percent.

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On Tuesday U.S. bank shares fell as much as 6 percent on Tuesday after a Senator Charles Schumer, who chairs the Joint Economic Committee, criticized government plans for a "bad bank" to buy banks' distressed assets.

Schumer told CNBC he would prefer the government guarantee distressed bank assets rather than use a "bad bank" to buy them up.

Bad assets, such as risky corporate loans and mortgages, have caused bank losses to mount since the credit crisis began more than a year ago.

In France bank executives told parliament on Tuesday they were pleased with state aid to help them through the crisis but were reluctant to cut dividend payments to shareholders.

The chief executive of Societe Generale said his bank would very likely participate in a second tranche of state financing but Frederic Oudea added that it remained important to pay a dividend even when it was a priority for the bank to boost its core capital.

In Bucharest Romanian president Traian Basescu urged SocGen and other western banks operating in former Communist countries to prop up their affiliates in the region.

Romania's largest two banks, BCR and BRD, are controlled respectively by Austria's Erste and SocGen.

Foreign owners "have the duty to continue to ensure their Romanian banks have the resources (they) need," he said late on Tuesday.

Russia's Plan

Russia's Kommersant newspaper reported that government plans to inject about 1.2 trillion rubles ($33 billion) into the country's banks may leave it with stakes of up to 30 percent in some of them.

Prime Minister Vladimir Putin on Tuesday called for greater consolidation in the industry, but there were no other official announcements from a cabinet meeting on Russia's struggling financial institutions.

Moscow has charged banks with ensuring the state rescue package reaches the real economy, keeping money markets open and plugging funding holes left by the global credit crunch.

In Iceland Straumur-Burdaras bank, which was less directly exposed to the crisis than its failed peers Kaupthing, Landsbanki and Glitnir, said on Wednesday it had been hit by impairments on loans and receivables of 291 million euros and further charges of 328 million on intangible assets.

"We continue to operate in exceptionally difficult times and markets," said Straumur Chief Executive William Fall in a statement.

Meanwhile Sweden based banking group Nordea's chief executive Christian Clausen was quoted as saying by business daily Dagens Industri that the bank was looking at the finance ministry's proposals on capital injections.

"I think it is good that the government improves on the support to the strong banks and now is focusing on capital injections in order to safeguard that the banks have capital," he was quoted as saying," he was quoted as saying.