Bradford & Bingley shares fell by 16% yesterday to close at a record low of 42p, well below the 55p a share it is seeking in its increased £400m rights issue.

Bradford & Bingley shares fell by 16% yesterday to close at a record low of 42p, well below the 55p a share it is seeking in its increased £400m rights issue.

Britain's biggest buy-to-let lender took the brunt of investors' worries about the impact of a falling housing market and economic downturn.

The bank was forced to increase a planned share issue to £400m last week after a downgrade from credit rating agency Moody's prompted US investor Texas Pacific Group (TPG) to ditch plans to take a 23% stake.

It had earlier dismissed a request from Resolution, which is seeking a vehicle from which to consolidate the banking sector, for access to its books to allow it to develop alternative fundraising plans. The unwinding of the fundraising scheme with TPG last week prompted analysts to revisit their price targets for Bradford & Bingley, with Fox-Pitt Kelton cutting it from 55p to 43p.

Its shares rank among the most heavily shorted on the UK market.

Samlyn Capital, a long/short equity hedge fund, was the latest to announce a short position in the company yesterday.

Adding to its woes, Moody's said yesterday that due to its downgrade the bank will have to set up a reserve fund for the Aire Valley vehicle it uses to securitise its mortgages and sell them into the market.

Bradford & Bingley was due to hold an extraordinary meeting yesterday to get shareholder approval for its fundraising. This will now be held in the week of July 14. Under the plans investors will be offered 67 new shares for every 50 they already hold.

Concerns about the state of the mortgage sector also hit Alliance & Leicester yesterday. Its shares closed down 2.74%, or 7p, at 248.5p, having traded down as much as 6%, amid worries that it will have to raise capital or cut its dividend if earnings fall as expected.