Bank shares plummeted yesterday after confirmation that Bradford & Bingley is to be carved up between the government and Spanish bank Groupe Santander in a move that could leave taxpayers paying the chief executive�s seven figure salary.

Bank shares plummeted yesterday after confirmation that Bradford & Bingley is to be carved up between the government and Spanish bank Groupe Santander in a move that could leave taxpayers paying the chief executive's seven figure salary.

It was a day of bank rescues as continental company Fortis sold stakes to the Belgian, Dutch and Luxembourg governments and America's Wachovia sold most of its assets to Citigroup in a deal brokered by Federal authorities.

Investors reacted by dumping bank shares. On a day when the FTSE-100 dropped 269.7 points to 4818.8, a 5.3% fall and its lowest close since April 2005, HBOS fell 18.1% to 142p and Lloyds TSB, which has agreed to buy it, was down 13.5% to 217.25p. Analysts pondered yesterday whether market conditions would prompt Lloyds to re-negotiate the terms of the deal. Royal Bank of Scotland was down 13% at 181p and Barclays off 8.8% to 334.12p. Only HSBC, which has large Asian operations, dodged most of the sell-off closing 1.6% down at 865p.

This was despite the intervention of co-ordinated action by nine central banks to pump cash into the banking system.

Bradford & Bingley's nationalisation, which follows that of Northern Rock in February, will see the government take on the bank's £50bn of mortgages, including large numbers of buy-to-let loans, and its headquarters while Santander will boost its share of the UK savings market to 10% by absorbing its deposits.

Ralph Brook-Fox, fund manager at Resolution Asset Management, said: "Santander have managed to pick up the savings business, which is the valuable and stable bit of the business and have managed to leave the toxic stuff effectively with the government."

Among the investors hit is Standard Life Investments, which had a 9.6% stake in the company at the end of last month after participating in its 55p-a-share fundraising in the summer.

Head of UK equities David Cumming said: "As long-term shareholders we stood by the company and supported its recent fund raising. This regrettably did not lead to the desired outcome."

Other banks including HBOS, Royal Bank, Lloyds TSB and Barclays were major backers of their rival while Santander had 2%.

Unlike Northern Rock, which was nationalised earlier this year with a plan to return it to the private sector, Bradford & Bingley will gradually disappear as people pay off their loans or switch lenders. But there remains a risk the government could be hit by the falling housing market.

Bradford & Bingley's biggest group of customers are buy-to-let borrowers with self-certified borrowers, who have not had to provide proof of income, the next biggest. Both groups have seen their proportion of loans in arrears growing fast.

The government has pledged to keep on the 1600 employees it assumes for at least six months. This includes the senior management team led by chief executive Richard Pym who is on a basic salary of £750,000 and guaranteed cash bonuses worth 50% of this until the middle of next year.

The Treasury was unable to confirm yesterday whether it will honour or seek to renegotiate the contract Pym signed when he joined the bank last month following the resignation of his predecessor Steven Crawshaw due to ill health.

The rest of the bank, including £20bn of savings, 1400 employees, 197 branches and its internet banking operations will be taken over by Abbey, owned by Santander, which is also completing the purchase of Alliance & Leicester.

The bank paid £612m cash to the Treasury although it said the real cost is nearer £400m as the bank secured £208m of capital sitting in Bradford & Bingley's Isle of Man business.

But the rest of the banking sector will end up picking up some of the bill. Because of Bradford & Bingley's problems, around £14bn of the deposits going to Abbey were paid by the Financial Services Compensation Scheme while the government transferred another £4bn in return for claims over Bradford & Bingley assets.

The FSCS's portion was financed by a government loan at a rate of 6.8%, costing the FSCS, which is funded by financial services firms, up to £900m a year in interest.

The Spanish bank told analysts and investors yesterday that it hoped to reap benefits from selling extra products such as credit cards and current accounts to Bradford & Bingley's 2.7 million savings customers, as well as cutting some of the interest rates paid by Bradford & Bingley when it was desperate for funding.

The bank will retain the Bradford & Bingley brand initially but is assuming that it will lose as much as 20% of deposits as savers, particularly those with internet accounts, switch elsewhere. It also said it would probably relocate one in five Bradford & Bingley branches.

It adds to Santander's growing presence in the UK banking sector.

After the Bradford & Bingley and A&L deals are completed, it will have 24 million UK customers and 1268 branches, including Bradford &Bingley's outlets in other companies' premises.

Alex Potter, analyst at Collins Stewart indicated that buy-to-let landlords could face rising interest rates and might stop dumping property.

"Four of the top six buy-to-let lenders have now gone or are retrenching: Bradford & Bingley, HBOS, Paragon and Lehman."

He added that Bank of Ireland's Bristol & West is likely to restrict credit as well.

"We estimate this to be over two thirds of the UK buy-to-let market which is likely to mean material interest stress for buy-to-let landlords."

Yesterday also saw co-ordinated central bank action to help banks.

The US Federal Reserve announced a $330bn (£183bn) expansion of its funding in a move that increases the money being offered by the European Central Bank, Bank of England and other key central banks to $620bn (£344bn).

Yesterday, Threadneedle Street received bids worth 1.3 times the £40bn of three-month money it pumped into the market to help banks that are struggling to finance their mortgage books.

But banks still saw their borrowing rates, measured by the London Interbank Rate (Libor) soar yesterday, particularly for euros and dollars. Three-month dollar Libor jumped more than 12 basis points to 3.88250%, three-month euros were up eight basis points to 5.225% while sterling rates crept up six basis points to 6.26125%.

"They are throwing billions around, but things seem to be getting worse. They are throwing everything they can at the problem but nothing seems to be working," said Joe Saluzzi, co-manager of trading at US company Themis Trading.

Financial Services Authority chairman Adair Turner yesterday said that "we are not necessarily right at the end of this process".

"Several times over the last year, regulators and banks and treasuries have believed that this situation has reached a full resolution and that we can be confident there is a turning point and then several times have been disappointed," he added.