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Sliding markets force UK bank Aldermore to abandon listing

* "Challenger" bank blames sliding equity markets

* Some investors queried valuation - source

* Cancellation casts pall over upcoming Virgin Money IPO (Adds comment from Aldermore CEO and Virgin Money)

By Freya Berry

LONDON, Oct 15 (Reuters) - British bank Aldermore has cancelled plans to float its shares on the London Stock Exchange, blaming sliding equity markets as it became the latest European firm to drop listing plans in recent weeks.

The decision to scrap the offering, which could have valued the bank at about 800 million pounds ($1.3 billion), casts a shadow over the prospects of the bigger and better known Virgin Money, another lender seeking to list this month.

"Whilst we were out on the road, basically the bottom fell out of the market," said Aldermore Chief Executive Phillip Monks, adding that the lender still had ambitions to list.

"A number of investors turned round to us wistfully and said, 'you couldn't have picked a worse time to IPO'. But they loved the story."

Aldermore and Virgin are among so-called challenger banks which the government hopes can break the dominance of Britain's "Big Five" of Lloyds, HSBC, Royal Bank of Scotland, Barclays and Santander UK, which together account for more than three-quarters of lending.

The bank, headed by former Barclays executive Monks and backed by private equity firms AnaCap and Morgan Stanley Alternative Investment Partners, had planned to sell about 300 million pounds of shares by Thursday and list the following day.

"The bank was being sold on growth at a time that we're seeing a flight to safety. It was the wrong stock at the wrong time," said a person close to the deal.

The source added that books "didn't get close" to being covered, and the valuation was regarded by some investors as too high. The bank set a price range of between 217 pence and 265 pence per share, valuing the business at a maximum of 870 million pounds.

The prospect of an interest rate rise in the United States and worsening economic outlook in Germany are among the reasons for an equities sell-off that has hit newly listed stocks in Europe, curbed investor demand for more offers, and pushed Britain's FTSE 100 down by over 8 percent since Sept. 4.

French energy services group Spie and Italian cosmetics firm Intercos both pulled their flotations last week.

VIRGIN MONEY

Virgin Money, backed by billionaires Richard Branson and Wilbur Ross, plans to sell 150 million pounds of new shares and is expected to be valued at 1.5 billion to 2 billion pounds.

"We are still pursuing our IPO and are engaged with investors," a spokesman for Virgin Money said.

A source close to the deal said that the firm was watching the markets and other factors including the upcoming results of the European banking stress tests on Oct. 26 before opening books on the deal. Virgin Money had initially planned to open books this week, a second person close to the deal said.

"They'll be thinking, do they need to get it done in the fourth quarter?" the first source said.

Money raised in European IPOs has more than tripled so far this year, with 188 deals raising $57.4 billion, up 263 percent on the same period in 2013.

However investors have become spooked by the poor market performance of many recent listings, with German firms Rocket Internet and Zalando, and UK holidays-to-insurance company Saga trading well below their issue prices.

"We have a big issue here. You already had rumblings from investors earlier this year. The problem is the hedge funds have backed away from the market in quite a big way," a London-based equity capital markets banker said.

"There's been all this pageantry from IPOs this year and yet they haven't made money."

The Aldermore listing was led by Deutsche Bank and Credit Suisse, and advised by Lazard. Nomura and Numis Securities were co-lead managers.

($1 = 0.6283 British Pounds) (Additional reporting by Steve Slater; editing by Pravin Char)

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