Investors' worries pile on the pressure

Despite raising billions to shore up balance sheets, the banks are still suffering from the credit crunch, fallout from the crash in the housing market and the Northern Rock debacle.

The FTSE slipped 53.1 points to 5309.2 this morning, with financials leading the way down.

Lloyds TSB was off 13.25p at 324.75p, Royal Bank of Scotland fell 11.25p to 208p and Barclays lost 14.25p to 333.75p.

This followed another bad day on Wall Street for the giant US banks. The Dow Jones tumbled 283 points yesterday, with Bank of America, Merrill Lynch and Washington Mutual (WaMu) being sold especially strongly.

Few UK analysts have dared to advise investors that banking shares have hit bottom and should be bought.

A note from Citigroup to clients said: "Things don't exactly look rosy for the UK banks as we head into the second quarter reporting seasons."

Citi expects to see "more revelations over structured credit exposures", leading it to slash earnings forecasts.

Analyst Tom Rayner expects "the decline in profitability to last far beyond the credit crisis itself".

HBOS shares also dipped, despite speculation that the banking giant behind the Halifax could be broken up.

Although the bank has just raised £4 billion in a controversial rights issue that has boosted its balance sheet, investment bankers still believe HBOS could be vulnerable.

A report in the Daily Telegraph said that JP Morgan is considering forming a consortium to make a bid, perhaps involving National Australia Bank (NAB).

HBOS declined to comment, though it is understood the bank has had no approach. Analysts were sceptical that NAB, a small player in the UK, could possibly gather enough funds even with the help of JP Morgan.

The Financial Services Authority would take a dim view of any attempt to destabilise HBOS. It has worked hard behind the scenes to bolster confidence in UK banks and would not be pleased to see a US investment bank taking advantage of investor jitters to grab assets at knockdown prices.

NAB today revealed another £400 million writedown from its exposure to US mortgages, sending its shares down 13%.

John Stewart, the NAB chief executive who used to run the Woolwich in the UK, said: "A significant loss is now inevitable and a worst-case scenario is now inevitable."

Stewart also poured cold water on the suggestion he has spoken to JP Morgan about a HBOS deal. "We're not sure this is a clever time to make acquisitions," he said.

HBOS shares fell 12p to 289.5p. It reports first-half results next week, with profits expected to more than half to £1.1 billion.