The Bank of England has told banks to put their houses in order as Bradford & Bingley shocked the market with big writedowns from the credit crunch.
B&B shares crashed 23 per cent to 187p after it announced £94m of write-offs from investments in toxic structured investment vehicles and collateralised debt obligations.
In total, the former building society took £228m of charges for wholesale assets and financial instruments and full-year profit fell by almost half.
B&B was the first bank to announce results as lenders unveil detailed numbers over the next three weeks for the period since the credit crunch started.
Mervyn King, the Bank of England's Governor, said: "It is important in my view not just that banks are clear about revealing the extent of their losses but also that they restore their position and don't delay too long in restoring their capital position. That may not be comfortable for shareholders but it will be healthier for the position of banks themselves and the UK economy."
The banks tried to reassure investors late last year with estimates of writedowns from complex debt instruments and US sub-prime loans. But fears about monoline bond insurers in the US have hit the value of assets still further in recent weeks and investors are worried about further writedowns that could weaken banks' cap-ital positions.
Bradford & Bingley strengthened its capital ratios over 2007, partly by selling £4bn of assets in November. Fears persist about other banks, particularly Royal Bank of Scotland, though it has indicated that its capital position is satisfactory.
On Monday, Standard Chartered was forced to ditch a plan to support its $7.15bn (£3.64bn) Whistlejacket SIV after the vehicle's plunging asset values pushed it into receivership. Whistlejacket was one of two SIVs that contributed to B&B's write-off.
Alliance & Leicester shares fell 7 per cent yesterday in the wake of B&B's announcement. A&L warned at the end of last month that it would write down £185m for credit-crunch losses in 2007 – more than three times its previous estimate.
Some analysts said B&B should have updated the market as A&L did. But Chris Willford, B&B's finance director, said events were moving so fast that the bank was adjusting its numbers up to the last minute.
"Without wishing to make a forecast on Alliance & Leicester, it is possible that their release won't be the final story on the numbers," Mr Willford said.Reuse content