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UPDATE 4-Britain considers bank options, shares drop

(Updates after Darling statement to parliament, adds sterling)

LONDON, Oct 6 (Reuters) - Britain promised on Monday to protect ordinary savers in the face of global financial turmoil, but shares in the country’s banks fell sharply on fears the government would seek partial ownership in return for support.

Germany pledged on Sunday to guarantee private deposit accounts, following earlier moves by Ireland and Greece, and other European governments followed suit [ID:nL6270939].

Britain said it was prepared to take “big steps” to restore confidence and get the financial system working properly again, but finance minister Alistair Darling did not detail any specific measures.

“It’s essential that we take action to both support the banking system as a whole, as well as being ready to intervene in particular cases when it’s necessary to do so,” he said in a speech to parliament.

Pressed repeatedly by politicians on what options the government was considering, Darling would say only: “I’m determined that when we take action we will take it quickly, we will take it decisively, and it works.”

Investors are worried measures being considered by Britain could include injecting capital into UK banks in return for equity stakes, which would weaken existing holdings.

“The obvious implication in the UK of a bank recapitalisation programme is that existing shareholders would be severely diluted,” said Panmure Gordon analyst Sandy Chen.

Shares in all the UK's big banks dropped heavily on Monday. At 1530 GMT, Royal Bank of Scotland RBS.L was the biggest loser among FTSE 100 banks, down 22.2 percent. HBOS fell 18.4 percent, and Barclays was off 14.4 percent.

“Inaction while floating these ideas out there is undermining the banks. The case for doing something sooner rather than later is strong,” said Fox-Pitt, Kelton analyst Leigh Goodwin.

EQUITY STAKES

Darling said in his speech each country should do “whatever is needed to deal with its own particular circumstances” but also urged countries to work together on the crisis.

“As far as I’m aware, no government or the European Commission were made aware of what the Irish government was proposing to do last week,” he said.

“It does demonstrate the problems that arise when member states take unilateral action. The same with Germany.”

One option for the UK government would be to provide capital to banks in return for equity stakes. It could also take on more underperforming bank assets [nL6453120]. Darling said on Sunday he was “looking at some pretty big steps”.

The government has already taken control of the UK’s Northern Rock bank and last week nationalised the mortgage book of bank and lending group Bradford & Bingley.

The global financial crisis has hit Britain hard, and as a growing number of economists say the country is heading for recession, the government is under pressure to take action to deal with the bank sector and the effects on the wider economy.

Car manufacturers and traders said on Monday the government needed to do more for the industry after data showed new car registrations tumbled more than 20 percent year-on-year in September [ID:nL6159655]. (Additional reporting by Christina Fincher, Paul Hoskins, David Clarke, Golnar Motavelli, David Milliken; writing by Jodie Ginsberg, editing by Will Waterman)

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