Stockholm - Nordic Banking Group Nordea on  Tuesday said it would strengthen its capital base by 3 billion euros (3.89 billion dollars), by offering a 2.5-billion-euro rights issue and lowering its dividend.

The announcement was made as the bank released its fourth quarter 2008 results in which operating profits dropped 28 per cent to 781 million euros.

Total operating income in the quarter increased 5 per cent to 2.25 billion euros, while loan losses totalled 320 million euros in the quarter. The losses were mainly attributed to Denmark, but also to other Nordic markets and the Baltic states, Nordea said.

Nordea chief executive Christian Clausen said loan losses were expected to "remain at a high level in 2009," adding that "we are preparing for another challenging year."

The rights issue was backed by major shareholders including the Swedish state with 19.9 per cent of the shares and Finnish-based Sampo Group with 12.1 per cent.

Swedish Financial Markets Minister Mats Odell welcomed the move, saying it would be funded over the stability fund set up for the banking sector.

Nordea's board proposed to lower its dividend from 0.50 euros to 0.20 euros per share.

Nordea was created in 2000 but traces it roots to 1997 when Merita Bank of Finland and Nordbanken of Sweden formed MeritaNordbanken. It has some 10 million customers and 1,400 branch offices.

Meanwhile, rival Swedish banking group Handelsbanken said Tuesday its fourth-quarter operating profits increased 39 per cent year-on- year to 5.2 billion kronor, topping analysts expectations.

Total income for the quarter increased 34 per cent to 9.5 billion kronor, while the group reported loan losses of 696 million kronor.

Handelsbanken's board proposed its dividend would be lowered from 8.50 kronor to 7.00 kronor per share.

In addition to Sweden, Handelsbanken has operations in Denmark, Finland, Norway, and Britain.

Nordea shares were off some 5.5 per cent late morning on the Stockholm bourse while Handelsbanken had gained 8 per cent. (dpa)