HBOS Worst Hit By Rush to Sell Financial Shares

More than a third was wiped off the stock market value of banking group HBOS by midday yesterday, when financial stocks were hard hit by the fallout from the collapse of US investment bank Lehman Brothers.

Owner of the country's biggest mortgage lender, Halifax, HBOS insisted it was "a strong bank" and there was no reason for the dramatic drop in its shares, which are the most widely held among UK private investors. A spokesman said: "HBOS is a strong bank. We have significant capital resources and the largest deposit base in the country."

At one point the shares were down 36%, putting the bank's stock market value at less than £10bn. At its peak last year before the credit crunch started to bite, the bank's market value was four times as great and since then it has also raised £4bn of fresh equity from its shareholders to help bolster its capital base.

The shares recovered some value to end the day down 17% at 232.5p, lifting off the low of 179.6p.

Troubled buy-to-let specialist Bradford & Bingley lost 15% to close at 31.5p - well below the 55p at which it recently sold fresh shares to its shareholders to raise cash. There were continued concerns about the ability of its mortgage customers to pay back their loans on time.

Barclays, which had been in discussions to rescue Lehman until Sunday evening, ended 10% lower at 316p. There was a mixed response to its involvement in the ill-fated bail-out which raised some concerns about its exposure to the US housing market. Alex Potter, banks analyst at City broker Collins Stewart, said: "If Barclays had bought Lehman its share price would be down enormously more."

Bob Diamond, Barclays president and head of investment banking, was summoned to the US last week to try to help in the crisis surrounding Lehman. As a result he was forced to postpone a presentation to investors in London yesterday.

Barclays confirmed it had "considered a combination with Lehman Brothers and did not proceed because it was not possible to conclude a transaction in the best interests of Barclays shareholders".

Royal Bank of Scotland shares were 10% down at 210.5p, while Alliance & Leicester, which will today ask shareholders to back a takeover by Santander of Spain, was off 6% at 276.75p. But the City's focus was on HBOS and concern about its need to raise an estimated £100bn in wholesale markets.