Banks wobble as shares go into a nosedive

With the global banking system about to enter its second year of credit crisis, US mortgage lenders on the brink of collapse and British banks today slammed by the Office of Fair Trading for their current account charges, it was a one-way street for bank shares.

Volumes of shares traded soared as all the main banks, including the normally less vulnerable Lloyds TSB and Standard Chartered, fell by anything from 4% to more than 9%.

The banks led the red markdowns on the stock market with the FTSE 100 index falling 86.2 to 5087p in anticipation of more bad news out of the US.

Barclays is raising £4.5 billion through a massive share placing, with Middle East and Far Eastern investors including sovereign wealth funds.

Those investors have now effectively made a loss of more than £360 million. The new shares start trading on the stock market next Tuesday.

The placing, announced just a month ago, is at 282p a share, which at the time was a 9.3% discount to Barclays' then share price. But the intervening weeks have seen bank values tumble and today's 15½p fall left Barclays shares trading at just 245p - 13% below the placing price.

The nervousness in the market was heightened by reports that China Development Bank, which is already a big investor in Barclays, had voted down plans to spend £136 million maintaining its stake at 3.1%.

Barclays said this was "utterly untrue" and that it had been reassured by the Chinese that the money was "sitting in Hong Kong waiting to be transferred across".

Tomorrow is the deadline for any existing investors to claw back some of the shares being placed. But given the discount, few are likely to do so since they can buy Barclays shares more cheaply in the market. That virtually guarantees the Qatari royal family and Prime Minister will emerge as the largest investors in Barclays, with a joint holding of almost 10%.

HBOS is also into the final hours of its £4 billion rights issue with it virtually assured that the vast bulk of the share sale will end up with lead underwriters Morgan Stanley and Dresdner Kleinwort and the City pension funds and insurance companies that have sub-underwritten it.

At today's price those underwriters face collective losses of £577 million.

HBOS shares fell 23½p to 236½p leaving them way below the rights issue price of 275p. It is already likely that the vast bulk of the bank's 950,000 private shareholders have turned their back on the issue.

Institutions will also probably shun it when it closes on Friday morning.