An overnight dose of bad news for the banking sector in particular and financial markets in general was the disclosure by one of the world’s biggest banks – Swiss bank UBS – that it may report “very weak” trading results in the September quarter (even while reporting a 79 per rise in second quarter profit).

So even as European Central Bank President Jean-Claude Trichet asserted that Euro-zone money-market conditions have “progressively gone back to normal” equity markets tanked once more. In the US, the S&P500 index fell about 1.8%, a fall largely echoed by Australia’s All Ordinaries Index – down 2% at noon.

Behind the market drop is a rise in the cost of funding. The market is now guessing the cost of funding at some financials, such as listed home loan company Rams, is roughly 10 basis points higher than it used to be.

Shares in Rams had, in any event, been in steady decline since the day it listed in late July, and mainly because the valuation of $885 million (or $2.50 a share) was more than any lender or private equity entity was willing to pay in a trade sale. In short, Rams was fully priced, and as markets have tanked, and the implications of Rams novel funding have become clear, the Rams share price had to go down.

By now, though, Rams is probably oversold — at noon Rams was 1c or 0.7% lower at $1.40. The talk is that trade buyers are already making fresh inquiries about what to make of Rams’ current funding difficulties.

The private equity also-rans in the original pre-float attempt to sell Rams — such as Kohlberg Kravis Roberts and Nikko Principal Investment Australia — are unlikely to be bidders in the current climate.

Rather, Rams is now a prime target for a major bank. There are two obvious candidates, National Australia Bank and Westpac.

It is understood that NAB tried to buy Rams last year, and for about 50% more than Rams’ current market capitalisation.

Westpac, which kicked tyres on Rams earlier this year, might be in the running as well. One reason for thinking so is that Westpac seems to be making changes in its approach to capital management.

One bank that probably won’t bother to bid is Commonwealth Bank. CBA today reported a 14% rise in net profit to $4.6 billion and rise in return on equity to 22.1% from 21.3%.

This is an edited extract of a news feature for this evening’s Eureka Report at www.eurekareport.com.au. Ian Rogers is the editor of banking industry newsletter, thesheet.com.