State Ownership Looms for Bradford & Bingley

Speculation intensified today that the stricken lender Bradford & Bingley will have to be nationalised if no private buyer is found.

A decision on the future of the leading buy-to-let mortgage provider could be made by the end of the weekend, Sky News reported financial sources as saying.

Yesterday, B&B shares were pummeled and its market value fell to £390m, more than 90% below its peak.

Shares in Lloyds TSB, HBOS and Royal Bank of Scotland also dived amid heightened concern for the stability of the financial system if a $700m (£378bn) bail-out of the US mortgage market does not go ahead.

Vince Cable, the Liberal Democrat treasury spokesman, said today that nationalising B&B must be the "last resort".

"If the bank is in serious difficulty, the best option is if it were taken over by another bank and without any involvement by the taxpayer," Cable told the BBC.

Gordon Brown - speaking in Washington last night after financial crisis talks with George Bush - said of Bradford & Bingley: "I wouldn't comment, and nobody would expect me to comment, on these speculative statements made in newspapers … I'm not going to comment on any individual company or building society."

Treasury officials are reportedly preparing contingency plans in case there is no buyer. Nationalization would be possible under legislation passed in February to allow the state to take over Northern Rock, but would saddle the exchequer with an estimated £50bn in liabilities. The Financial Services Authority has contingency plans for B&B: the City regulator is thought to have considered finding a bidder or splitting up the business.

Depositors' savings are protected by a government guarantee, but the sustained fall in B&B's shares suggests investors have little appetite for the bank. They ended Friday at 20p, against the 55p at which it went to investors for £400m last month.

B&B's new chief executive, Richard Pym, tried to restore confidence this week following downgrades by credit rating agencies. He reduced so-called "toxic" investments, cut 370 jobs, axed new mortgage business and slashed £1bn off a troubled deal with the mortgage company GMAC.

Last night there were reports of some British banks lobbying the Treasury for a general bail-out of the kind being offered to take assets such as high-risk mortgages off the hands of ailing Wall Street institutions. Brown does not back a general British bail-out and wants to deal with crises institution by institution.

HSBC announced plans to cut 1,100 investment banking jobs, 500 of them at its Canary Wharf operations in London. That represents 4% of its global investment banking workforce but less than 1% of its total staff.

The cuts, by a bank regarded to have weathered the credit crunch better than most, has raised fears of other redundancies.

HSBC announced the retirement of its chief operating officer, David Hodgkinson, and the appointment of Ken Harvey to a new position of chief technology and services officer. The bank, seen as one of the strongest because it does not rely on wholesale markets for funding, played down suggestions of further job cuts under its plan to integrate technology and operations.

HSBC has decided to cut its investment banking workforce because it expects market conditions to worsen and wants to focus on emerging markets. The investment banking arm took £2bn in write-downs from toxic investments in the first six months of the year.

Unite, the union more traditionally concerned with high street banking staff rather than investment banking, expressed its disappointment at the redundancies. Derek Simpson, the Unite joint general secretary, said: "We are now seeing the human cost of the credit crunch. We need action to end this crisis. This situation should never happen again, and that's why the financial services need to be regulated more effectively."

Traders in the fixed-income division of Lehman Brothers await their fate. Administrators at PricewaterhouseCoopers have secured a deal to sell the equities and corporate finance operations of the collapsed US investment bank to Japan's Nomura, saving 2,000 jobs.