Concerns about a deeply troubled bank that has yet to report - Northern Rock - has added to the pressure on smaller lenders raising cash in difficult wholesale markets, and contributed to the bad news from A&L and B&B that drove both down to all-time lows.
M&A ACTION?
The falls by A&L and B&B were cushioned though, by speculation that Lloyds TSB or another bank could step in to try to buy them at a knock-down price. Lloyds has said it will look at acquisitions.
As for LLoyds itself, analysts say the bank's lower exposure to risky assets and what its CEO termed a "good old fashioned banking" approach could see it outperform rivals in the coming months.
Yet it wouldn't be immune to a UK economic slowdown, another headwind facing the sector.
"The key question is how much deterioration will we see," said Morgan Stanley's Hayne, citing higher unemployment and corporate bad debts as potential areas of pain.
UK sector leader HSBC also confirmed its position as a relative "safe haven", despite taking the biggest hit of all the banks -- $17.2 billion (8.7 billion pounds) in bad debts bloated by past U.S. subprime housing loans and a $2.1 billion writedown.
Even though impairments are set to rise further this year, HSBC's balance sheet is one of the strongest in the industry and its businesses elsewhere are firing well, especially in Asia.
Standard Chartered also continues to reap the rewards of its Asia focus and its growth appears certain to outpace UK-listed peers again this year.
Those prospects, and the worries hanging over the domestic banks, may be priced into valuations already, however.
Standard Chartered shares trade on over 13 times expected 2008 earnings, while RBS trades on under 6 and HBOS is just over that. Lloyds trades at over 8 times earnings, but the domestic sector averages under 7 whereas European banks average over 8.
"There are too many issues out there. Lots of the stocks look cheap, but the risk to a lot of people seems too high to take on at the moment," Rensburg's Morton said. "We need the fog to clear but it could take a long time for that to happen."
