It may turn out to be one of the most expensive telephone calls never made.

JJB Sports yesterday was reduced to little more than a laughing stock - and its shares lost more than £120 million in value - as the sports chain revealed that an oversight by its former finance director had almost forced one of its banks to call in a loan critical to the health of the business.

In a day that lurched from panic to chaos to pure comedy, JJB said that HBOS had threatened to walk away after David Greenwood, a former finance director, forgot to tell the bank in April that the retailer may have breached one of the covenants on an £18 million loan.

The oversight sparked a chain of events that led Deloitte, JJB’s auditor, to warn investors in the retailer’s half-year results yesterday that there was a “material uncertainty” over the company’s ability to continue as a going concern.

JJB’s was reduced to contradicting its own auditors, insisting that no covenants had been breached and that HBOS had been pacified and had agreed to keep the loan in place - at the cost of an extra £450,000 in interest payments a year.

To top it all, JJB’s actual results showed the group fell nearly £10 million into the red over the six months to July 27 after profits of £8.3 million a year ago. The interim dividend was axed and analysts halved their forecasts for full-year profits.

Roger Lane-Smith, JJB’s chairman, was reduced to joking that at least the group was better than Woolworths. He said: “The first we knew that Deloitte had put this in the results statement was at one o’clock this morning. We tried to call the person involved but he had gone to bed and left his mobile phone downstairs.”

He added that HBOS had taken advantage of the uncertainty created by Mr Greenwood’s mistake to wring out more money. “They held a gun to our head,” he said. “Why do banks do this? They do it because they like to get an advantage over you.” Chris Ronnie, chief executive, added: “Little Red Riding Hood springs to mind.”

The uncertainty triggered a huge sell-off and shares in JJB almost halved, plunging more than 49 per cent to 52½p - their lowest since September 1995.

Philip Dorgan, analyst at Panmure Gordon, JJB’s house broker, said in a research note that while Deloitte’s use of language was “draconian”, investors had decided to “shoot first and ask questions later”.

Mr Ronnie insisted that with £50 million cash in the group’s various banks, including a £20 million loan from Kaupthing, JJB had a bright future. He added that JJB was benefiting from a far better relationship with Adidas and Nike after beginning to move more upmarket in its range.

However, he conceded that there was little sign of an upturn in trading as customers worried about the economic slowdown.

Mr Ronnie said: “If you are a consumer, every day you put on the TV there’s bad news. Look at beer prices, food prices. These poor consumers, all of us, are being hit harder than we have ever been hit.”

He added: “Look at footwear: our football boot sales are down as people are just deciding to get another season out of them. They are not going to spend £60, £80, £90 on a new pair of boots.”

Mr Lane-Smith insisted that he had every faith in the management team and that of JJB Sports. “David Jones, one of our nonexecutives and the former chairman and chief executive of Next, said to me that this was the worst retail recession he can remember, and David has a long memory. We have reasons to be cheerful and we are convinced that our strategy is the right one.

“The last six to eight weeks have been encouraging, we are making a profit every week, so that’s good. But there’s a lot to play for and it’s a long match.”

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts