WRAPUP 1-Bank shares jolted as EU regulator verdicts near

By Victoria Howley

LONDON, Oct 28 (Reuters) - Europe's regulators held sway over the region's banks on Wednesday, approving a UK government plan to break up mortgage lender Northern Rock just as shares in Irish banks crashed on fears of tough sanctions.

Shares in Lloyds fell on fears that this week's break-up of Dutch bancassurer ING was an example for Britain's biggest retail bank, which is facing mounting pressure in its campaign to escape further government control.



For Margaret Doyle's column on Britain's banks and EU remedies, click on



Shares in Bank of Ireland and Allied Irish Banks fell by as much as a quarter as tough sanctions against peers magnified concerns over Ireland's bank rescue and prospects faded for quick fundraising.

Separately, results from Santander -- the euro zone's largest bank by market value -- and from National Australian Bank Ltd, Australia's largest bank, showed both were impacted by bad debts.

The European Commission is reviewing a raft of bank bailouts across the 27-country EU, with many lenders expected to divest assets, close branches and cut market share in return for regulatory approval for state aid.

On Wednesday, Britain gained clearance from Brussels to split up Northern Rock -- one of the first major victims of the credit crunch in Britain -- in two, creating a new savings and mortgage bank, Northern Rock Plc.

The rest of the group will become Northern Rock Asset Management, holding existing mortgages and unsecured loans, but it will be closed to new business.

On Monday, Dutch bank ING said it would split its operations, leaving the firm's balance sheet 30 per cent smaller than before its bailout, in a sign of how tough the EU can get on banks that have received state aid.

Markets gave the two Irish banks the harshest treatment, as doubts persist over the country's plans to pay 54 billion euros to cleanse banks of risky commercial property loans, for which the finance ministry is yet to receive approval.

Markets were also preparing for a bout of arbitrage around Lloyds shares, with stock-lending -- an often-used indicator of short-selling -- up to 6.9 percent of the total market value, up from just 1.34 percent at the beginning of the month.

Nomura Holdings Inc was a rare glimmer of bright news, announcing its biggest profit in nine quarters, coupled with 1.6 billion dollars in trading gains.

The numbers suggested that the Japanese broker's aggressive push into overseas bond and equity markets is paying off after its acquisition of the European operations of defunct Lehman Brothers last year.

Santander posted a small drop in nine-month net profit as it boosted provisions for an expected rise in bad debt from Spain's housing boom hangover.

Bad debt charges at NAB rose 14 percent for the six months to the end of September, dampening hopes that Australian lenders will return surplus capital to investors anytime soon as the lender said it needed the buffer as economic headwinds remained.

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