BRITAIN’s biggest lender of buy-to-let mortgages, Bradford & Bingley, which is in the middle of a rights-issue roadshow, will stun the City this week with a profit warning and the departure of its embattled chief executive, Steven Crawshaw.

The announcement will trigger widespread concern that British banks are sitting on a time-bomb of rising mortgage arrears and mounting bad debt. It will also reignite fears about the viability of some of our top financial institutions.

Rod Kent, the bank’s chairman, will take over executive control of the bank, which has a network of 200 branches, while it looks for a replacement chief executive. It is understood that Crawshaw, 47, has been unwell for some time and has been looking to step down.

The profit warning is expected to be contained within the bank’s rights-issue document that will be sent to investors in the next five days. Profits for this financial year will be significantly lower than analysts’ forecasts. The bank has been hit hard by mounting arrears from borrowers and squeezed margins.

Last year B&B made pretax profits before exceptionals of £336m. This year analysts had predicted a range between £160m and £200m. However, this is thought to be far too optimistic and profits will be lower.

The B&B profit warning comes at a bad time for the banking sector. HBOS, Britain’s biggest mortgage lender, is about to launch its £4 billion rights issue, while Royal Bank of Scotland is in the closing stages of raising £12 billion.

For B&B, the admission of lower profits comes at a time when it is trying to raise £300m from shareholders. On Friday, its share price closed just 6¼p above the 82p-per-share price of the rights issue. In the past four weeks the price has fallen as concerns grow about the state of the bank’s finances. However, while its profits will be lower, this is not a repeat of the nationalisation of Northern Rock.

Analysts say even if the share price falls beneath the rights-issue price it has been underwritten by investment banks. They also say that the bank is well capitalised and its shares are trading at half its net asset value.

Kent, a City veteran who built his reputation as chief executive of Close Brothers, the boutique investment bank, must work hard to rebuild the confidence of shareholders. One of the bank’s top five investors said this weekend: “It’s a bit like they are driving along in a little cartoon car, just waiting to fall off the cliff.”

Another said: “The share price has been saying for weeks that something is wrong, but no guidance has been given to the City”.

At its peak, in March 2006, B&B’s stock-market value hit £3.2 billion. It is now a shadow of its former self and at Friday’s close was worth only £545m. Most analysts believe that the bank will struggle to remain independent and that a takeover is now inevitable.

Crawshaw joined the company nine years ago before becoming chief executive in 2004. He is seen as an able operator but the scale of the problems have proved too much.

Pressure will also come on some of the nonexecutives, including Kent, for failing to ensure that the City was kept informed.

Analysts say to raise money with so much uncertainty about the group’s future profitability is going to be tough.

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