Banking crisis at fresh depths

Shares in the sector were on the slide in London and New York amid growing fears the deepening credit crunch will claim another high-profile victim. It weighed heavily on the wider markets with the FTSE 100 index down 111 points at 5520.7 and the Dow Jones Industrial Average off 61.8 at 11,889.3. Goldman Sachs predicted the S&P 500 - down 17 at 1271.15 tonight - to fall a further 10%.

It was not just banks feeling the pain. Hedge fund manager Man Group was the biggest faller of the financials in London on fears its Wall Street-listed commodities broking arm MF Global was on the brink of collapse. Man Group was down 9% or 46.5p to 494.5p after MF Global crashed 71% to $5.

Lehman Brothers was on the rack as rumours swept Wall Street that it was in trouble, while Barclays and Halifax owner HBOS led the sell-off in the City. It came after the dramatic meltdown at Bear Stearns, Wall Street's fifth-largest bank, which was last night bailed out by JPMorgan Chase in a $240 million (£120 million) deal.

The all-share offer valued Bear Stearns at just $2 a share - a massive discount to the $169 the shares hit in January last year. As part of the deal, the US Federal Reserve has underwritten $30 billion of Bear's toxic subprimemortgage-backed bonds to protect-JPMorgan shareholders.

The Fed also offered banks extra lines of emergency funding to ward off any further disasters but it did little for Lehman's share price tonight as it plummeted 20% to a six-and-a-half-year low.

Lehman is expected to write down another $1 billion when it posts firstquarter results tomorrow. It denied talk that Singapore's DBS, South-east Asia's largest bank, had stopped trading with it. Chief executive Richard Fuld said the extra funding made available by the Fed meant it would not run out of cash and "takes the liquidity issue for the entire industry off the table".

But ratings agency Moody's cut its financial forecast on Lehman and analysts at UBS took a sledgehammer to its target price for the bank's shares.

In the event of a crisis, ING thinks the US Federal Reserve would not save Lehman as it did Bear. It said: "We think the Fed was moved to provide lender-of-last-resort facilities because it judged Bear's large prime brokerage business made it 'too big to fail' in the wholesale payments, clearing and settlement system. On the face of it, Lehman is not too big to fail."

Analysts said every bank, including some of Britain's biggest, was now at risk. Alliance & Leicester and Bradford & Bingley were seen as particularly vulnerable.