Northern Rock shares slumped as much as 20 per cent to a fresh record low today amid renewed speculation it could be forced into a cut-price sale or break-up.

Sandy Chen at Panmure Gordon slashed his price target on Rock shares from 300p to just 100p, pointing out that bargain basement bids for the Tyneside mortgage bank "could be easily justified".

The respected banking analyst predicted the Rock's financial performance would plummet from a £298 million pre-tax profit next year into a £120 million loss. He said pressure on margins would most likely continue and that there was little room for effective cost-cutting.

Shares fell as much as 34.7p to 144.5p, although they traded slightly higher at 150.3p as the afternoon progressed.

The slide came despite the increased belief that JC Flowers, the US private equity group, was lining up a possible bid for the bank. Hedge funds and distressed debt investors are all thought to be circling Northern Rock.

"We could expect a bid for the loan book alone, at a discount," Mr Chen said.

"It has already been pointed out that a 3 per cent markdown on the £97 billion of customer loans on the Northern Rock balance sheet could wipe out the £2.3 billion in shareholders’ equity," he said.

It emerged late last week that the bank's junior bondholders had hired Houlihan Lokey, the investment bank, as an adviser, suggesting they were preparing to fight their corner in a break-up of the Rock's assets.

Northern Rock's value has collapsed from just short of £2.7 billion shortly before it emerged in mid-September that the lender had sought emergency funding from the Bank of England. Today's share price low values the Rock at just £609 million.

The unfolding financial crisis sparked the first run on a UK bank in more than a century and prompted Alistair Darling, the Chancellor of the Exchequor to guarantee savings held by the bank's 1.5 million account holders.

Todasy, Mr Darling extended the Government's guarantee on individuals' savings to £35,000. He confirmed a story in The Times last week that he aimed to increase the protection to cover as much as £100,000 on deposit at a bank or other financial institution.

The insurance lobby hit out at the move. Stephen Haddrill, director general of the Association of British Insurers, said: "We agree that savers should be offered the possibility of 100 per cent compensation up to a higher limit than at present. That is one of the lessons of Northern Rock. But the Government has now set the limit at the upper end of what is sensible."

Mr Hadrill added that: "A limit of £35,000 will cover well over 98 per cent of all savers and is broadly in line with arrangements for investments and other savings. If the Government pushes the limit further upwards it risks distorting the savings market, providing a guarantee for risky investment strategies and adding to costs for customers," he said.

He noted that financial services firms would pay for the compensation scheme and not the taxpayer. "At this stage we believe that a higher limit is neither necessary or desirable," Mr Hadrill said.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts