MercoPress. South Atlantic News Agency

British banking sector suffers devastating share losses

The bloodbath in the British banking sector continued apace on Tuesday as Lloyds Banking Group joined Royal Bank of Scotland in suffering further devastating share losses.

Lloyds - created on Monday from the merger of HBOS and Lloyds TSB - plunged 47% at one stage amid doubts over the Government's second bank bail out and renewed fears for the sector's health. RBS also extended the mammoth falls of the previous session, with another double digit drop on top of Monday's 67% plunge. The NatWest parent had started the day in positive territory, but shares later slipped 11% into the red, with heavy losses for banks on Wall Street adding to its woes. America's Dow Jones Industrial Average fell nearly 2% in early trade in a poor start to trading after the US public holiday on Monday. US banks Citigroup and Bank of America saw shares slump to their lowest levels since the recession of the early 1990s. In London, Lloyds was the worst hit, followed by Barclays down 17%, while HSBC also fell 3%. The wider FTSE 100 Index closed down 17.1 points at 4091. The bank share falls follow news that RBS expects to report record annual losses, but also comes in the wake of the recent expiry of the short-selling ban. The FSA had until last Friday protected financial stocks from short-selling - when investors, typically hedge funds, borrow shares in a company which they then sell in the hope of buying them back later at a lower price. Market talk suggesting that Lloyds could be next in line to become majority owned by the Government added to the troubles. The group is currently 43% owned by the State after the first round of Government aid and experts have said there is a chance it will need to hand over further equity. RBS is to become 70% owned by the Government - up from 58% - after Monday's announcement that it will swap its £5 billion preference shares for ordinary shares. Lloyds is not thought to be included in this, with the group's chairman, Sir Victor Blank, seeking to give assurance in an interview with Sky News late Monday that he does not want the Government to take a bigger stake in the bank. Barclays and HSBC, the only major high street banks not yet to receive state aid, have also come under pressure. HSBC said on Monday that it did not see a need to draw on Government aid, but suffered steep falls in Hong Kong overnight amid worries it will have to raise further cash to offset potential losses.