European stock markets plunged this morning as the financial sector was thrown into turmoil after US investment bank Lehman Brothers filed for bankruptcy protection.

The move comes after a rescue plan revealed by the bank last week, which involved spinning off $30bn (£17bn) of property assets and bringing in outside investment failed to calm fears over its liquidity.

Lehman Brothers Holdings today said that it intends to file a petition under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York.

It said that none of the broker-dealer subsidiaries or other subsidiaries of Lehman Brothers will be included in the Chapter 11 filing and all of the broker-dealers will continue to operate.

The board of Lehman Brothers said it was seeking chapter 11 protection in order to protect its assets and maximize value.

It said that in conjunction with the filing, it also intends to file a variety of first day motions that will allow it to continue to manage operations in the ordinary course.

Those motions include requests to make wage and salary payments and continue other benefits to its employees

It said it was also exploring the sale of its broker-dealer operations and said it was advanced discussions with a number of potential purchasers to sell its investment management division.

It said that Neuberger Berman and Lehman Brothers Asset Management will continue to conduct business as usual and will not be subject to the bankruptcy case of its parent, and its portfolio management, research and operating functions remain intact.

In addition, fully paid securities of customers of Neuberger Berman are segregated from the assets of Lehman Brothers and are not subject to the claims of Lehman Brothers Holdings’ creditors,’ it said.