UBS could be forced to take on a large stake in Paragon Group as shareholders prepare to shun a £287m rescue rights issue for the stricken mortgage lender.

The investment bank, which is itself reeling after announcing $18 billion (£9 billion) losses linked to the US sub-prime crisis, fully guaranteed Paragon’s rights issue. This means that if the issue is significantly undersubscribed, UBS will be left with a major stake in the company. The subscription deadline is tomorrow.

Although, when it was announced last month, Paragon’s rights issue was offered at a 90% discount to the then share price, the shares have since plummeted to just above the issue price of 100p. On Friday, the shares closed at 102p.

One investor said: “This situation is even more unusual because we’re being asked to put in twice the amount we own. Having lost 90% of our former investment, it’s not a great prospect.”

In an attempt to boost investor confidence, the company said on Friday its directors were taking up their rights in full, which would raise £1.8m for the issue. But insiders were pessimistic that this would get UBS off the hook.

The rights issue was proposed last month to repay the company’s £280m corporate facility due by February 27.

Paragon’s difficulties came to light last year after the group warned it might have to suspend lending to new borrowers because of the credit squeeze.

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