Banking shares dropped sharply in London Monday as the Bank of England injected an extra 5 billion pounds (8.97 billion dollars) into money markets following the collapse of Wall Street's Lehman Brothers.

In what traders quickly dubbed "meltdown Monday," the Financial Times Index was down by 4 per cent in early trading, with leading banks taking the brunt of the punishment.

Following the shock news from Wall Street, London-based Lehman Brothers International (Europe) was placed into administration, accountancy firm PriceWaterhouseCoopers (PWC) said.

PWC said it was working to "wind down the business in as orderly a manner as possible."

Tony Lomas, partner with administrator PricewaterhouseCoopers, said, "Because the group managed its funding on a global basis, the UK trading operation found itself unable to meet its obligations when the flow of funds dried up last night."

Lehman Brothers employs around 5,000 people in Britain.

Employees clearing their desks at headquarters in London's Canary Wharf district Monday said they were told by internal e-mail that the bank had filed for bankruptcy.

"It's just shock, total shock. We really thought someone would buy Lehman because it has such a strong franchise," said research worker Duo Ai, despatched to London from New York.

Earlier Monday, Britain's Barclays Bank, which had been one of the front-runners in efforts to rescue Lehman Brothers, said it had considered a merger but decided that a bid would not have been in the interest of shareholders.

"We confirm that Barclays considered a combination with Lehman Brothers and did not proceed because it was not possible to conclude a transaction in the best interests of Barclays shareholders," Barclays said in a statement.

Barclays was among banks hit by the fall-out from the Lehman collapse on the London stock market Monday, where its shares fell by around 8 per cent.

Britain's biggest mortgage lenders, Halifax Bank of Scotland (HBOS), saw shares drop by more than 15 per cent, while shares in the Royal Bank of Scotland (RBS) fell by more than 12 per cent.

The news from Wall Street sent shock waves through Britain's banking sector, which has been jittery ever since the collapse of mortgage lender Northern Rock a year ago, and its nationalization earlier this year.

The Bank of England said the extra funds injected Monday were almost five times oversubscribed by banks, which put in bids totalling 24.1 billion pounds, in a sign of the renewed pressures on the financial system.

"The whole of the international financial system is at risk," Vince Cable, an economist and financial affairs spokesman for Britain's Liberal Democratic Party said Monday.

After the demise of Lehman Brothers, the "whole of the financial sector simply cannot return to where it was before," Cable said.

But Angela Knight, chief executive of the British Bankers' Association, took a more relaxed view.

She described Lehman Brothers as a "relatively small player" in Britain and said no British bank was in a similar situation, as leading banks had been "recapitalizing themselves" over the past few months.

"Whilst it's not going to be a particularly comfortable day, the issue is one of a major US investment bank which has got into difficulty. No UK bank is in a similar situation," she said.