Bradford & Bingley is planning to announce an emergency rights issue this morning to shore up its battered balance sheet, The Times has learnt.

The mortgage bank is thought to be exploring how it might raise fresh capital, and at least one institutional investor has been approached about the possible underwriting of the deal.

According to one source, the bank has been gauging investor appetite for raising £300 million by offering one new share at 90p for every two held, although the precise terms had not been set and could be significantly modified. That would represent a huge discount of 43 per cent to the closing price of 158.75p last night.

It would also represent a U-turn for the bank, which only three weeks ago emphatically denied a report that it was looking at a rights issue.

B&B, which has carved out a niche as a specialist lender to buy-to-let borrowers, has been badly hit by the credit crunch because it relies on the wholesale markets for a large amount of its fundraising. B&B, which is advised by Goldman Sachs, said last night that it would be making an announcement today in response to The Times inquiry but declined to comment further.

Royal Bank of Scotland and Halifax Bank of Scotland have already announced rights issues to raise £12 billion and £4 billion respectively. Paragon, which specialises in buy-to-let lending, has also tapped its investors through a rights issue. The Bank of England, which recently launched a £50 billion liquidity scheme to ease the credit crunch, is understood to be keen that banks strengthen their balance sheets through capital raisings.

In April B&B apparently asked Citigroup, its corporate broker, to assist with a capital raising. However, in a statement in response to newspaper stories, the lender said: “Bradford & Bingley has a strong capital base, above its regulatory requirements, and as a result of the board’s conservative approach, has funded its business activities through 2008 and into 2009.”

Chris Willford, B&B’s finance director, told a conference this month that the bank had not yet drawn on a £2 billion funding facility of three to five-year cash supplied by a number of banks. It also raised £2.5 billion in the wholesale market last September and October and funds more than 50 per cent of its lending with retail deposits.

Analysts predicted yesterday that more than half a million shareholders in Alliance & Leicester (A&L) were facing a dividend cut of 30 per cent this year, after the bank unveiled £391 million of treasury writedowns.

Share dealers, unnerved by the writedowns, which were worse than had been expected, hammered the shares, which ended the day 10 per cent down at 458¾p, near to their lowest point and well below the 533p at which they were floated 11 years ago. The bank declined to rule out a rights issue to beef up its balance sheet. Although strongly reliant on the paralysed wholesale markets for much of its funding, it said, nevertheless, that it had funding in place to last until the second quarter of 2009.

Barclays, which is due to report to shareholders tomorrow, may come under pressure to strengthen its capital ratios through equity issues or asset disposals. Barclays raised concern yesterday after apparently notifying analysts that it had updated the consensus figure for earnings per share published on its website. It appeared that Barclays had revised down the figure by about 15 per cent, to 58p for 2007-08 and 68p for 2008-09. Barclays was unavailable for comment.

On the continent, Crédit Agricole said yesterday that it would scale down its investment banking business after stunning investors with the announcement of a ¤fresh<NO>round of sub-prime writedowns. Société Générale also declared huge writedowns as the credit crunch rumbled across Europe.

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