Plunging bank stocks forced the FTSE 100 below 6,000 as investors frightened by Bradford & Bingley's surprise profits warning fled the sector. The banking sector was down 1.5 per cent by the late afternoon, compared with a 1 per cent fall in the FTSE 100.

Analysts said that B&B's warning of even tougher trading and rising bad debts was bad news for the rest of the sector, particuarly Royal Bank of Scotland and Halifax Bank of Scotland (HBOS), which are both trying to get rights issues away at the moment. Robert Law, analyst at Lehman Brothers, said: "This is potentially unsettling for the sector ... We would expect RBS and HBOS to be nervous and volatile. We would view any bounce in these shares as a selling opportunity".

B&B stock had falled almost 24 per cent at 4.23pm to 67.25p per share. HBOS was also hit, slumping 10 per cent to 360p, while Alliance & Leicester dropped 5.4 per cent to 402.25p. B&B told investors today that Steven Crawshaw, the chief executive, would stand down due to “a serious cardiovascular condition". At the same time, the bank said that it was scrapping the format of its £300 million rights issue, announced just two weeks ago, and said that TPG, one of the world's largest private equity firms, would take a 23 per cent stake in the company.

The bank also said pre-tax figures for the first four months of this year fell from a £107 million profit to a loss of £8 million, blaming “difficult market conditions”.

It predicted that more customers would default on mortgages as the economic slowdown takes hold, revealing the number of people who are more than three months behind with their mortgage payments has jumped from 1.63 per cent to 2.16 per cent over the past four months.

The bank also said that it had lost £15 million through organised frauds.

TPG, the American buyout house, has agreed to make a £179 million cash injection into the company alongside a £258 million fundraising from existing City shareholders in the form of a rights issue. All shares will be issued at an offer price of 55p per share and raise £400 million for the troubled lender, well below the original rights issue price of 82p.

Last month B&B announced plans for a £300 million rights issue at 82p, which was a 48 per cent discount at the time. However, the lender’s stock has since fallen by more than 40 per cent and on Friday it closed at 88¼p.The lender will publish a prospectus this week and hold an extraordinary meeting in early July to approve the capital raising. An extraordinary meeting originally planned for June 16 has been adjourned indefinitely.

The rights issue has been underwritten by Citigroup and UBS.

Rod Kent, the former Close Brothers managing director who has been B&B’s chairman for almost six years, has become executive chairman and will run the company until a new chief executive is found.

Mr Kent said today: "When we started the year with our expectations we weren't anything like as gloomy as we are now. Our view of arrears' figures has changed."

He added: "The last few weeks have been challenging for Bradford & Bingley, and this is a disappointing trading update reflecting a more difficult market environment. I understand shareholders' disappointment."

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