European shares fell on Monday, driven by the banking sector after British mortgage lender Bradford & Bingley reignited fears about the impact of the credit crunch on the broader economy.
Shares in B&B, Britain's largest buy-to-let lender, sank nearly 25 percent after it said it had replaced its chief executive and slashed the price of its emergency fundraising to secure a private-equity lifeline.
The company's warning about the state of the UK mortgage market, the starkest yet from a British lender, coincided with the release of data showing approval for new home loans fell to a record low in April.
Despite B&B's status as a midcap company, it sent shivers through global banking stocks, where a degree of optimism had started to build as banks have strived to purge their balance sheets of as many subprime-related assets as possible and some institutions have announced measures to shore up their capital position.
Banks were the worst performers of the day.
Spain's Banco Santander lost 2.2 percent, while B&B rival HBOS fell 10 percent and BNP Paribas fell 2 percent.
In the U.S., shares in Wachovia, the fourth- largest U.S. bank, fell 3 percent after the company ousted its chief executive against a backdrop of mounting losses.
The FTSEurofirst 300 index of top European shares fell 1.1 percent to close at 1,319.13 points.
"It's been maybe a bit of a wake-up call that the financial problems are not just all down to the U.S. subprime market and we can't insulate ourselves from that. It's been a bit of a slap around the face for investors," said IG Index chief markets strategist David Jones.
"The fallout in the property markets, the aggressive lending worldwide, is all coming home to roost now ... Maybe Bradford & Bingley is just the tip of the iceberg," he said.
Banks Keep Lagging
The DJStoxx of European banks fell 1.9 percent.
"The banks were the weakest sector in May and the sell-off continues now, which shows that the market expects further negative news," said Andreas Huerkamp at Commerzbank.
"It may well be that the writedowns are behind us, but now we can see that it is affecting the operating business," he added.
In May, the banking index lost nearly 8 percent and has shed some 22 percent so far this year, compared with a 12 percent fall in the FTSEurofirst 300.
Oil and gas stocks fell on Monday as crude oil prices remained below their recent record highs.
BP, Total and Royal Dutch Shell fell between 0.6 and 1.8 percent. BG Group lost 2 percent and Repsol YPF fell 2.3 percent.
Auto stocks also fell out of favour, leaving the DJStoxx index of European autos down 2.3 percent.
Suppliers Michelin and Continental fell more than 4.6 percent following a note from Credit Suisse, which cut its estimates for Michelin by 6 to 20 percent and removed Continental from its "focus list" due to high oil prices.
Italian car maker Fiat fell 3.5 percent after Chief Executive Sergio Marchionne said on Sunday new car sales in Italy fell almost 20 percent last month.
The pharmaceutical sector was among the few to eke out a gain.
Switzerland's Roche gained 4.6 percent after the publication of encouraging research results on its Avastin drug and bullish broker comments which suggest that rival Merck KGaA's drug Erbitux is less of a threat than initially feared.
Merck shares fell 2.8 percent. Novartis rose 2.3 percent.
Consolidation hopes boosted solar energy stocks after Robert Bosch GmbH made a 101 euros-a-share bid for TecDAX-listed Ersol, which shot up 63 percent.
"We see this as the boldest move so far in what we see as the start of a consolidation process in the solar industry," a trader at Sal Oppenheim said in a note.
"In particular, we see companies from mature industries such as the automotive or the semiconductor industry bringing process know-how to the solar industry. This should create interest in companies such as Solon, but also Centrosolar or Aleo."
Shares in Solon were up 14.6 percent.