UK markets have fallen in early morning trading with eyes across Europe glued to Deutsche Bank as its shares set fresh record lows amid ongoing speculation about the lender's financial health.
Deutsche Bank collapsed by more than nine per cent in Frankfurt this morning after key partners took fright and started to cut back their exposure to the lender. Its shares hit a new record low, falling below €10 each for the first time since it became listed on both the German and US stock markets in 2001.
The contagion from the bank, dubbed "globally systemically important" by regulators such as the Bank for International Settlements, the European Central Bank and the International Monetary Fund, has spread across the banking system with alarming speed.
The FTSE 100 was down 1.3 per cent in the first hour of trading, falling to 6,830. Banks led the downwards charge with Barclays falling 4.3 per cent to 160p, RBS off by 4 per cent at 170p and the more retail-focused Lloyds down 2.1 per cent to 54p.
Credit Suisse, Societe Generale, Credit Agricole and BNP Paribas all joined the club of those tumbling by more than four per cent.
The Eurostoxx banking index, which tracks the performance of the top European-listed banks was down by 4.2 per cent.
Analysts raised concerns earlier this week Deutsche Bank could become the next Lehman Brothers, triggering chaos on the financial markets if it was to go bust. However, the bank does have the option to tap up both its bond-holders in a "bail in" which would see their debt changed to equity and reduce the bank's immediate liabilities, or a combination of the European Central Bank or the German government for emergency liquidity or to pump cash into the financial giant buy buying shares.
All options would be embarrassing and would send the share price down, hence Deutsche's reluctance, so far, to entertain any ideas. Last week it categorically denied reports it had approached the German government for assistance, while the German finance ministry also refuted reports which suggested it was preparing to take a 25 per cent slice of the business.