There are two ways to get a drink in the middle of a liquidity drought. The City witnessed both approaches yesterday.

Bradford & Bingley, the buy-to-let mortgage lender, put some high-quality assets on the auction block and came away with £4.2 billion in cash. The disposals were put in train in April, before the credit crunch, but there is little doubt that B&B is glad of the extra cash now. It will provide a liquidity cushion that will keep the bank comfortable for many months. The timing of the sale may not have been ideal – B&B had to take a modest loss on its commercial lending book – but these were not fire sale prices.

By contrast, Paragon, B&B’s smaller rival, did not have the luxury of any unpledged assets to sell. It was forced to go to UBS and its biggest shareholders for the promise of an emergency injection of fresh equity. Worse, it had to admit that the rights issue was not cast-iron guaranteed and that the company might fail if it fell through.

The B&B deals demonstrated that there are deep-pocketed institutions prepared to stump up cash in these difficult times. At least some prospective financial asset buyers are no longer hesitating. Many cashed-up buyers are still sitting on their hands in the hope of even keener prices later, but it seems some are biting now.

The Paragon story is altogether more disturbing. History is repeating itself. Formerly a sub-prime lender by the name of National Home Loans, its shares achieved the dismal feat of falling from £12 to 12p in the space of a few months in the early 1990s as the housing market fell. Once out of intensive care, NHL was given a facelift and name change to Paragon and launched back into financial markets. This time round the shares have collapsed in slower motion – from 750p to 125p in the past 18 months.

It may be that Paragon can yet persuade its banks or bondholders or subordinated debt holders to come to the rescue before the February crunch. It may be that it can still get by paying a much higher interest rate on an existing £2.3 billion loan facility. But that is not the way to bet. Paragon is worried enough to be paying £513,000 in fees per week for the reassurance of an underwritten rescue rights issue.

The liquidity crisis shows no signs of abating. Even the weightiest of banks are reluctant to lend to each other. Three-month Libor, the rate at which they borrow, rose to its highest for two months yesterday. Sir John Gieve, the Bank of England’s Deputy Governor, told bankers to brace themselves for further tightening in credit markets. With talk of the credit crunch stretching into 2009, B&B looks prescient, while Paragon looks desperate.

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