Paragon has become the second British lender, after Northern Rock, to give warning that its future is in doubt in the wake of the global credit crunch.

The buy-to-let mortgage specialist said today that it may not be able to continue as a going concern if it failed to secure funds by February.

So far its bankers had only offered loan terms that would "jeopardise shareholder value”, Paragon said. The lender also unveiled plans for a possible emergency rights issue - a measure under which it would approach its shareholders for fresh cash.

It emerged today that JC Flowers, the US investor, has made a bid for Northern Rock, offering to pay a nominal amount for the business but it will inject £1 billion to revitalise its balance sheet and pay £15 billion to reduce £24 billion worth of emergency government borrowing the lender has drawn down since mid-September.

However, shares in Northern Rock fell below £1 for the first time, closing 6.7 per cent down at 97p when more doubts over its future spooked investors. Cerberus, one of four parties thought to be considering serious offers for the bank, has decided against making a firm bid because of financial market turmoil.

Its interest is also thought to have been affected by credit-related losses at GMAC, the former financing arm of General Motors, the US carmaker, which is now 51 per cent owned by Cerberus.

Northern Rock said yesterday that proposals it received on Friday were "materially below" its market value.

The bank is now worth just £249 million following today's share price plunge, compared to nine months ago when Northern Rock's shares peaked at £12.12, giving it a market value of £5.2 billion.

Savers have continued to desert Northern Rock after an initial run saw panicked customers withdraw over £2 billion in a matter of days when it emerged it had sought emergency funding from the Bank of England.

The Building Societies Association (BSA) said net receipts in October swelled from last month’s £2.82 billion record to £3.02 billion as savers sought safer havens for their money.

Northern Rock was forced to seek funding as wholesale borrowing between banks became more expensive. The three-month London Interbank Offered Rate today rose from 6.45 per cent to 6.49 per cent - its highest level since September 19.

Shares in Paragon fell more than 40 per cent in early trading after the buy-to-let mortgage lender said that it may have to launch a £280 million rights issue if it is unable to secure conventional funding terms with its banks by February.

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