Royal Bank of Scotland shares plunged nearly 40% to a 15-year low today as speculation mounted over an imminent taxpayer-funded rescue of Britain’s banks.
RBS shares hit their lowest point since 1993 and eventually closed more than 39% lower – wiping around £10bn off the value of the business.
Halifax Bank of Scotland – being bought by Lloyds TSB in a rescue takeover - tumbled 41% while Barclays slid 9% as investors bailed out in the uncertainty.
The falls came in another day of turmoil for bank shares after it emerged top executives had held crisis talks with Chancellor Alistair Darling.
The Government is considering a dramatic intervention to prop up banks’ finances by using billions of pounds in public money to take stakes in the business.
Tonight the UK's Prime Minister Gordon Brown and the Chancellor were in talks at Downing Street with Bank of England Governor Mervyn King and the Financial Services Authority’s chairman Lord Turner.
The banks’ woes hampered a fightback by the FTSE 100 Index after yesterday’s 7.8% slump – the biggest since Black Monday in October 1987.
The Footsie finished up just 16 points at 4605.2.
But banks grabbed the spotlight as investors feared shareholdings could be diluted by large Government stakes.
Concerns banks could be liable for billions in payouts on complex credit instruments in the wake of Lehman Brothers’ collapse also shook confidence.
RBS was also hit today when ratings agency Standard & Poor’s downgraded the firm’s investment status.
Both RBS and Barclays denied they had asked the Government for capital but the claims failed to halt the sell-off. Lloyds TSB, which refused to comment, fell 13%.
IG Index’s head of sales trading, Tim Hughes, said: “At the moment it is difficult to see what can be done for confidence in the banks.
“With financial dramas cropping up on almost a daily basis, it is not hard to understand why any rallies in the broader market are proving to be unsustainable.”
The woes across the wider sector continued after Iceland nationalised its second-biggest bank Landsbanki – leaving UK savers in limbo as its Icesave online website was frozen.
The concerns caused a fresh spike in money markets as fearful banks refused to lend to each other.
The overnight lending rate, which should be virtually the same as the official 5% interest base rate in normal conditions, jumped more than 0.75% to 5.84%. Three month rates – used to price mortgages – widened to 6.28%
The BBC reported RBS, Barclays and Lloyds TSB needed around £15 billion of extra capital each. The banks at the meeting called for the Chancellor to act quickly but Mr Darling did not have a fully-prepared rescue plan, the report said.
There has been speculation Mr Darling is considering moves to shore up UK banks with taxpayers’ cash but he did not give any firm commitments when he addressed MPs yesterday.
He said “all practical options must remain open” for dealing with the crisis, but added that it would be “irresponsible” to give a running commentary on plans.
London’s leading shares started today’s trading with some solid gains but the Footsie lost its momentum amid the concerns over banks.
The Icelandic government’s rescue of Landsbanki under sweeping new powers which came into force yesterday came amid warnings that the entire country could go bankrupt.
It is the second nationalisation in little more than a week after ministers were involved in a rescue of rival Glitnir.
The wider Footsie was kept in the black by rate cut hopes and recovering commodity prices lifting miners. Oil prices also bounced back from eight-month lows yesterday helping heavyweights BP and Royal Dutch Shell advance 4% and 3% respectively.