Continued worries over the stability of the Co-operative Bank, whose debt was downgraded six notches by Moody's last Friday, hit sentiment across the sector, with Lloyds Banking Group and RBS each falling 2%.
Elsewhere, Investec downgraded HSBC from 'buy' to 'sell' following the bank's results last week, saying there is now "limited further upside for the stock", sending shares down 2% to 730p.
"Underneath all the optical complexity, the key issues for HSBC do appear perfectly simple. It is generating far more capital than it is able to deploy, and as such, muted (or non-existent) loan growth coupled with continuing [net interest margin] pressure translates into poor cost-efficiency metrics and inadequate returns," said Investec's Ian Gordon.
Gordon recommended switching into Standard Chartered, but the Asia-focused lender had problems of its own after high profile short-seller Carston Block revealed his Muddy Waters fund was shorting the bank's debt due to concerns over its loan book.
Standard Chartered shares were down 3.8% at £15.23 shortly before midday.
The widespread weakness in the banking sector offset healthier returns elsewhere in the FTSE 100, pushing the index down 0.25% to 6,609, slightly off the five and a half year highs reached last Friday.
Categories: Economics / Markets