The shares plunged 20p to 706p as the bank announced that Lord Cairns has resigned as its chief executive following weeks of turmoil, to be replaced by chairman Sir David Scholey and a new management team. Sir David said Lord Cairns had tendered his resignation because "he knew the time to stop had come".
Sir David yesterday warned that job cuts would now be necessary if the bank's fortunes were to be rebuilt.
He said it would not be a case of arbitrarily cutting one in three, but looking at whole areas of the business to see whether it should remain.
Warburg has already closed its Eurobond operations at a cost of 180 jobs.
Sir David said yesterday: "Certain parts of the business will need reshaping - I wouldn't go further than that at this stage."
Warburg also warned that "the difficult market environment has continued to have an adverse effect on investment banking results".
Warburg's shares yesterday fell 56p at one point to 670p, below the level before the aborted talks with Morgan Stanley were first revealed.
Warburg finally admitted that the abandoned merger talks with Morgan Stanley and a number of senior staff defections last week had produced a crisis of "low self-confidence and uncertainty".
Lord Cairns, chief executive since 1991, is being closely identified with the failure.
From his country home in Wiltshire yesterday, Lord Cairns, his voice cracking with emotion, said: "I have nothing further to say. I have nothing to say."
On Saturday Sir David came "storming back" to fight for the bank's independence in the face of continued bid rumours, according to bank sources. Yesterday morning he addressed dealing rooms, corporate finance teams and video links with Hong Kong, Japan and New York.
The centrepiece so far of the new strategy is a five-man executive committee made up of close Scholey associates, dubbed by insiders as the old guard. The team would act like a chief executive, Sir David said.
Headed by himself, the committee includes two corporate financiers and two brokers - Colin Buchan, Michael Sargent, Mark Nicholls and Edward Chandler.
The executive needed to act swiftly to quell increasing speculation that it was rudderless. Morale was dealt a severe blow last Tuesday when Maurice Thompson and Michael Cohrs resigned as joint heads of equity trading, to join arch-rival Morgan Grenfell.
Warburg's decisive action, following reports of up to 10 defections last week, cheered staff in the bank's Finsbury Avenue offices. According to one employee yesterday, "everybody's saying `about bloody time too'."
Three days of intense meetings starting last Friday and involving senior executives flying in from all over the world started with Lord Cairns tendering his resignation to Sir David on Saturday morning. The resignation was officially confirmed by the full board on Sunday before Sir David's "revitalisation" campaign started in earnest.
Lord Cairns was being paid less than £1m a year by Warburg and, like all its executives, was on a contract of less than one year. This means his pay-off will be around £1m, rather than the much higher figure that might have been expected with the three-year contracts common in industry.
One employee was philosophical about the chief executive's departure: "No one likes a screw-up like this in the short term, but everyone thinks its good in the longer term.
"While Lord Cairns seemed pretty aloof, Sir David gives the impression of being on the ball. He's much more of a fighter and won't just sell us down the river."Reuse content