City jobs at risk in US bank crisis

The huge vote of no confidence by investors meant Lehman Brothers was in danger of becoming the biggest victim yet of the credit crunch.

US analysts said Lehmans was horribly damaged by its vast exposure to the American mortgage market "and may or not make it".

Shares in the 158-year-old bank, which yesterday declared a quarterly loss of $3.9 billion (£2.2 billion), plummeted 40 per cent today. It follows a 45 per cent drop on Tuesday.

It comes a year after the collapse of Northern Rock, one of Britain's biggest mortgage lenders.

Lehmans employs 20,000 staff around the world, including 4,000 in Europe, of which the vast majority are in London. In the past three months it has only shed around 150 staff from the Canary Wharf headquarters of its UK operation, but far more job losses are feared.

The bank's management has launched a desperate rescue plan, including the sale of more than £2 billion worth of UK mortgages but this has done nothing to restore confidence.

Although Lehmans is highly unlikely to be allowed to collapse entirely, its troubles already have major implications for the London economy.

Bonuses will be severely cut back this year and many previous year bonuses will have bee made in the form of shares now worth 94 per cent less than their high point over the past year.

The huge sell off of Lehman shares was triggered by the failure of its chief executive Dick Fuld to secure a huge injection of capital from the Korean Development Bank.

Analysts and shareholders said the independent survival of the bank was hanging in the balance. Rose Grant, managing director of Eastern Investment Advisers in Boston said: "As much as they try to calm people down, imvestors don't yet have the answers they need. There's a complete lack of faith, lack of confidence and lack of trust."

The loss of Lehman Brothers, one of the so called "bulge bracket" investment banks, would send seismic shock waves through the world's financial system. Unlike Bear Stearns, which was rescued earlier this year, Lehman, founded by three German cotton traders in 1850, is part of Wall Street's banking aristocracy.

The Lehman crisis comes almost exactly a year after it emerged that Northern Rock was forced to apply to the Bank of England for emergency funds, prompting the first run on a British high street bank for a century and a half.

Today Bank of England Governor Mervyn King said the Bank was in no position to help other British lenders that have got into difficulties.