Northern Rock shares slumped almost a third to a record low yesterday amid renewed speculation that it could be forced into a cut-price sale.

Sandy Chen at Panmure Gordon reduced his price target from 300p to 100p, pointing out that bargain basement bids for the Tyneside mortgage bank “could be easily justified”.

He predicted that Rock would plummet from a £298 million pretax profit next year to a £120 million loss. Mr Chen said that pressure on margins would continue and that there was little room for cost-cutting. The shares fell as much as 57.7p to 121.5p, closing more than 26 per cent down at 132.1p.

The slide came despite the belief that JC Flowers, the US private equity group, was lining up a possible bid that would keep the bank intact. Hedge funds and distressed debt investors are all thought to be circling. “We could expect a bid for the loan book alone, at a discount,” Mr Chen said.

It emerged 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 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. Yesterday’s closing price valued it at £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, to guarantee savings held by the bank’s 1.5 million account holders.

Yesterday, Mr Darling extended the government’s guarantee on individuals’ savings to £35,000 and said he aimed to increase cover to £100,000.

However, the insurance industry hit out at the move. Stephen Haddrill, director-general of the Association of British Insurers, said: “The Government has now set the limit at the upper end of what is sensible.”

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