Bradford & Bingley stoked fears about the financial health of Britain’s biggest banks after the lender gave warning that its profits would plunge because increasing numbers of homeowners are not paying their mortgages.

Royal Bank of Scotland and HBOS, which owns Halifax, the UK’s biggest mortgage lender, rushed out statements to reassure their shareholders that they were trading normally. But nervous investors wiped almost £4 billion from the value of the banking sector yesterday.

Bradford & Bingley’s profits warning sparked concern that the bank would suffer a run on its accounts like the panic last year that led to the collapse of Northern Rock. Yesterday, however, customers remained calm.

Outside the London Wall branch, David Potter, 63, said: “I’m not concerned as a depositor but I would be if I was a shareholder. The Northern Rock precedent means you don’t have to worry.”

After the run on Northern Rock, the Government increased to £35,000 the compensation paid to savers who lost their cash in a bank collapse.

Bradford & Bingley, a former building society, announced two weeks ago that it would raise £300 million from shareholders to bolster its balance sheet. Yesterday it admitted that it needed even more cash after business plummeted in April. TPG Capital, a US private equity firm, will pay £179 million for a 23 per cent stake in the company. Bradford & Bingley will also raise £258 million by selling new shares to existing shareholders.

Rod Kent, its chairman, admitted his company, which is Britain’s biggest buy-to-let mortgage lender, had been too slow to react to April’s tougher mortgage market. He also said that the bank had failed to raise the cost of loans quickly enough, and had seen the amount of money being put into its current accounts dry up as banks competed fiercely for new customers.

Mr Kent said: “The simple fact is that we did not pick up quickly enough the shift of trends. With the benefit of hindsight there were some early pointers in our March results but the trends became more pronounced in our April figures.”

Bradford & Bingley said that the number of landlords who had not paid their loans for at least three months jumped by 52 per cent in the first four months of the year compared with last year, with bad debts noticeably worsening in April.

Arrears on Bradford & Bingley mortgages went up by 36 per cent, while the number of houses repossessed rose by almost 25 per cent to 700. Bad debts on self-certified loans, known as “liar loans” in America because they can allow people to get a bigger mortgage by falsifying their income, rose by more than 38 per cent.

Financial experts said that Bradford & Bingley’s announcement was bad news for other banks, particularly those that were big buy-to-let and self-certified mortgage lenders. Robert Law, a banks analyst at Lehman Brothers, the investment bank, said that he expected Alliance & Leicester to be particularly badly hit. Shares in HBOS fell by 10 per cent to 360p per share and A&L slumped by more than 5 per cent to 403p.

Bradford & Bingley shares plunged by 24 per cent to 67p after its announcement, taking it well below the 82p-per-share discounted price of its original rights issue. The new rights issue is priced at 55p per share. The bank’s one million small shareholders will vote at an extraordinary general meeting in mid-July on whether the rights issue should go ahead.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive