Shares in one of Britain’s biggest banks plunged by 35 per cent today as markets reeled from the shock collapse of US-based Lehman Brothers.

Thousands of jobs were placed in jeopardy as Lehman, one of the world’s biggest banks, fell victim to the credit crunch. The fall-out was particularly felt at HBOS.

The firm is the parent company of Wolverhampton-based specialist lender Birmingham Midshires, whose shares were down by 35 per cent at one stage today. Barclays was also down nine per cent.

Lehman Brothers, which has been hit by billions of dollars-worth of sub-prime mortgage losses, said it was planning to file for bankruptcy protection.

The news, affecting 5,000 workers in the UK, brought gloom to British banks already suffering under the credit crunch.

The FTSE 100 index was down 259.9 points this afternoon to 5156.8.

The UK arm of investment bank Lehman was placed into administration after its US holding comp-any filed for Chapter11 bankruptcy protection this morning.

Prime Minister Gordon Brown’s spokesman said the Treasury, Bank of England and Financial Services Authority were in “very close contact” with their US counterparts and other international bodies, and Mr Brown had been kept informed of developments over the weekend.

Speaking at a regular daily briefing of reporters at Westminster, the spokesman said: “What the events of this weekend have once again demonstrated is that there are challenges affecting financial markets in every country across the world.”

The move follows the collapse of talks to secure a rescue deal for Lehman Brother.

Barclays had been the front-runner but walked away, and a consortium led by Bank of America (BoA) followed soon after.

By Business Editor Jim Walsh