Analysis: Black Monday | Two-minute catch up | Countdown to bankruptcy | Merrill Lynch seals future | Oil prices tumble

The Bank of England and the European Central Bank (ECB) today acted to stop escalating panic by pumping nearly £30 billion into financial markets after Lehman Brothers sent global shares plunging after it filed for bankruptcy.

In London, the FTSE fell 261.1 points to 5,157.3 by early afternoon and banking shares dropped rapidly.

HBOS, which owns Halifax, the mortgage lender, was the worst hit of the UK banks after its share plunged by nearly 25 per cent to a 214.5p.

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Royal Bank of Scotland lost 13 per cent to 206.75p while Barclays, which pulled out of rescue talks to buy Lehman, saw its stock decline by over 12 per cent to 306.25p.

The Bank of England made £5 billion worth of short-term funding available to guard against fears that financial markets will grind to a halt if banks, spooked by the collapse of Lehman, stop lending to each other.

At the same time, the ECB released €30 billion (£23.8 billion) to keep liquidity flowing between banks.

In France, the CAC 40 index lost 5.2 per cent and Frankfurt’s DAX fell 4.2 per cent. It is widely expected that the Dow Jones industrial average will open nearly 400 points lower when trading begins. It also emerged overnight that Merrill Lynch had struck a deal to sell its assets to Bank of America for $50 billion.

The deal was a surprise since Bank of America had been mooted as a possible white knight to rescue Lehman.

Following the bankruptcy move by the 158-year-old Lehman, the bank’s UK holdings followed suit and went into administration today, advised by PricewaterhouseCoopers.

Tony Lomas, one of the administrators and a partner at PwC, said that the business would be wound down in as orderly manner as possible.

"Because the group managed its funding on a global basis, the UK trading operation found itself unable to meet its obligations when the flow of funds dried up last night,” Mr Lomas said.

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