Shares in the three banks set to receive a £37 billion government bail-out were pushed to new lows amid growing fears that the cash would not be enough to rescue them from a lengthy recession.

HBOS fell 12p to 74½p and its predator Lloyds TSB fell another 17p to 149p ahead of its shareholder vote on whether to buy HBOS. Royal Bank of Scotland fell 6.3p to 44.7p, way below the 65½p price that the Government will have to pay.

Simon Samuel, a Citigroup analyst, who has been investigating previous banking recessions, such as those in the United States in the 1930s and in Japan and Sweden in the 1990s, said: “A repeat of the past would see sector earnings wiped out and gross operating profit, loan books and deposit balances fall 30 to 60 per cent. Valuation metrics, such as price-to-earnings ratios or price-to-book value, would break down.”

RBS has assets of £1,900 billion and writing down even a small fraction of this sum would wipe out all the benefit of its forthcoming capital injection.

Neil Woodford, manager of the out-performing Invesco Perpetual Income Fund, has told Killik, the brokerage, that he predicts ten to fifteen years of austerity in Britain and is still avoiding banks since they are “so opaque as to be uninvestible”. He believes that the stock market has passed its low point but also that there will be huge divergence between values of stocks with strong cashflow, such as utilities, tobacco and pharmaceuticals, and those without.

The FTSE 100 fell 100.81 points to 4,132.16, with the mining sector falling almost as much as banks. Kazakhmys, the copper miner, fell 32p to 237¾p after Cazenove said that it would struggle to meet $432 million of debt repayment next year and $576 million the year after unless ongoing talks with the Kazakh Government to sell half its power business succeeded.

Wolseley fell 33¼p to 271¼p before interim figures today, which are expected to include a grim outlook. Standard Chartered fell 54½p to 722p as Dresdner Kleinwort stoked growing fears that it would need a rights issue of £2 billion to £3 billion. Kingfisher fell 5.9p to 100.5p after JPMorgan cut forecasts for next year by 8 per cent and lowered its price target from 130p to 120p, based on the falling value of Kingfisher’s Chinese B&Q operation and what it expected would be a weak Christmas.

Gem Diamonds, the diamond miner, fell 131½p to 213½p after giving warning of a slump in diamond selling prices in the run-up to Christmas. There are fears that diamond dealers – sightholders – will be forced to cut prices sharply to pay back and service $3 billion of loans from Fortis, the nationalised continental bank.

Mecom, the owner of regional newspapers in Europe, fell another 0.48p to 1¼p and Johnston Press, its British peer, fell 2.87p to 9.88p amid worries that they might breach bank covenants. Mapeley, the property developer, fell 48¾p to 156p amid worries that Fortress Investment, which gave warning last week of soaring redemptions, would have to sell down its stake.

— New York: Shares on Wall Street veered sharply lower as investors worried about a huge round of layoffs announced by Citigroup. The Dow Jones industrial averaged closed at 8,273.58 points, down 223.73.

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