* Santander holds investor event in London on Thurs, Fri
* Capital levels key concern for investors
* Bank to be quizzed on possible rights issue, asset writedown
* Possible participation in CAM auction also in focus
By Sonya Dowsett
Sept 28 (Reuters) - Investors will quiz Spain's Santander on any plans to raise capital and write off Spanish real estate losses at a two-day event in London this week, against a backdrop of plummeting confidence in European banks.
The euro zone's biggest bank held its last investor day in October 2008, on the heels of the collapse of Lehman Brothers. The investors' meeting planned for Thursday and Friday comes at a tumultuous time for European banks caught in the grip of a euro zone debt crisis.
Foremost amongst investors' concerns is a crunch on funding in the face of frozen wholesale money markets.
One investor said Santander may be planning a sale of problem loan portfolios, an extraordinary provision or a rights issue to tackle any capital shortfall.
"It's been rumoured in the market in the last few weeks that the bank might carry out a cleaning up of its balance sheet," said Madrid-based fund manager Alejandro Varela, who holds Santander shares as part of 100 million euros ($136 million)under management at Renta 4.
"That will determine whether they maintain their dividend or not," he added.
Santander has declined comment on these issues in the past.
Santander reiterated its 0.6 euro dividend per share target for 2011 in July.
However, a dividend cut could be on the cards as the bank tries to conserve capital after a string of acquisitions and pressure rises to increase provisioning against defaults on loans to bankrupt Spanish property developers.
Shares in Santander touched a two-and-a-half year low earlier this month as fears about European banks' exposure to the sovereign debt of troubled members of the 17-nation currency bloc reached fever pitch.
The cost of insuring the bank against default has also risen sharply -- Santander's credit default swaps hit record highs in 2011.
Shares are currently trading at 6.2 euros per share, or 6.6 times expected 2011 earnings, compared to 8.5 times for British bank HSBC and around 4 times earnings for French banks such as Societe Generale .
Investors will also question Santander on whether it will participate in the government-run auction for troubled Alicante-based savings bank Caja de Mediterraneo (CAM). Bigger banks want CAM for its deposits and branch network, but are wary of its losses and debt obligations.
In June, Santander's Core Tier 1 capital -- a measure of resilience in the face of economic uncertainty -- was 9.2 percent. This is likely to trend down to 9 percent at year-end, according to Bernstein Research.