NatWest in crisis: shares dive to 10p

RBS, which owns NatWest, was the biggest faller and by afternoon was down 69 per cent to 10.7p. Two years ago its shares were worth £6.

The other high street banks were also caught up in the turmoil with the Lloyds Banking Group down 26 per cent at 72.7p on its first day of trading since the completion of its takeover of HBOS.

HSBC shares fell 72p to 463.75p and Barclays was 8.8p lower at 89.2p, having started the day higher.

The crisis overshadowed the latest attempt by Gordon Brown to shore up the country's crippled financial system with another rescue package aimed at easing the flow of credit to businesses and families.

Analysts said they were still not convinced that the Government had brought the situation under control and said full-scale nationalisation of major banks may be unavoidable.

The new chief executive of RBS, Stephen Hester, said it was time to "fess up" to the mistakes made during the boom years. The Prime Minister said he was "angry" about what happened at the bank.

David Buik of brokers BGC Partners said: "Sentiment is downbeat with confidence at zero. Frankly, investors are saying they are desperate to see audited accounts, spelling out in words of one syllable the losses incurred by the individual banks in this most important of sectors."

RBS's disastrous fall was almost entirely caused by reckless lending to foreign borrowers.

The bank said that its core high street and commercial lending activities in Britain had been profitable last year.

However, these were hugely outweighed by losses in its international banking and financial trading arm.

It is also having to write off billions of pounds from businesses bought during an aggressive international takeover spree.

The unprecedented scale of the bad loans and write-offs was laid bare in today's trading statement to the City.

RBS said it lost between £7 billion and £8 billion on its day-to-day lending and trading because of "the sharp deterioration in economic conditions" and "ongoing dislocation in financial markets".

On top of that RBS said it had paid between £15 billion and £20 billion too much for Dutch bank ABN Amro and other businesses and this would have to be written off.

There is a further "impairment charge" of between ¤17 billion (£15.3  billion) and ¤19 billion (£17.2 billion) related to ABN Amro which RBS bought in 2007.

The official accounts for last year will be published next month. Britain's second largest bank today also unveiled a second bail-out from the Government that will lift the taxpayers' holding in RBS from 58 per cent to 70 per cent through the issue of £5 billion of ordinary shares.

The move is aimed at bolstering the balance sheet, reducing its dividend costs and helping it to start lending more to businesses and home owners.

The Treasury said RBS had agreed to increase lending by £6 billion over the next 12 months in return for the support.

Chief executive Stephen Hester admitted that the bank, which transformed itself from conservative pillar of the Scottish financial community to, according to one measure, the world's biggest bank in just seven years, had made major blunders.

He said: "We did make the situation worse for ourselves by expanding at the wrong time and ABN Amro is a big part of that.

"That was a microcosm of what happened across the world because people became too positive in the bull market.

"We are moving purposefully forward. The first stage is to 'fess up. We are being kept strong in part by the Government. It's our job to allow our customers to stay strong."

The aggressive expansion policy forged by former chief executive Sir Fred Goodwin is now blamed for the bank's downfall. He was ousted in October and replaced by Mr Hester when it became clear how deep the bank was in trouble.

In the fourth quarter of last year RBS lost £2.8 billion in its global banking and markets division.

A single loan to collapsed Dutch chemicals giant LyondellBasell Industries, part of Russian oligarch Leonid Blavatnik's business empire, has cost RBS £1 billion.

Losses in the US sub-prime and other credit markets are expected to total £8 billion for last year.

The bank warned that the worst was not over yet.