Bradford and Bingley shares have dropped dramatically this morning after the UK’s biggest buy-to-let mortgage lender warned the downturn in the housing market will hit profits this year and that it had secured investment from US private equity firm Texas Pacific Group (TPG) to shore up its finances.

This morning the sale of a 23 percent stake to TPG for £179m was announced alongside a restructuring of B&B’s rights issue, which will see the Yorkshire-based banks raise a further £258m from its existing investors.

Shares will be offered to investors at 55p each. B&B shares were initially suspended and were down 20 percent at 70p when trading resumed shortly after 8:10 this morning.

The deal with TPG is an unprecedented intervention by a buyout firm to help bolster a UK banks finances, and will involve a redrawing of B&B’s controversial rights issue.

“The last few weeks have been challenging for Bradford & Bingley, and this is a disappointing trading update reflecting a more difficult market environment,” Rod Kent, B&B’s executive chairman said.

Analysts have said that B&B’s profit warning will heighten fears of an implosion in the buy-to-let mortgage sector as the housing market deteriorates, and raise the spectre of a buy-out by a rival.

The UK bank was forced to take the extreme measure because its existing rights issue, which was offering shares at 82p each, looked to fail. Plans for the rights issue were initially denied by B&B and investors appeared to reluctant to take the offer up given the state of the UK housing market.

B&B said today that profits will be lower for the financial year, confirming investors’ fears, after it slumped to a pre-tax loss of £8m in the first four months of the year. Its arrears jumped from £23m to £36m.

“B&B has a trading problem. It’s a desperate move, but should ultimately instil some confidence in the company,” said one analyst. TPG’s move might be interpreted as a sign that the worst is over, he said.

Adding to the drama of today’s announcement, B&B’s executive chairman Mr Cranshaw is stepping down due to a “serious cardiovascular condition,” with immediate effect. Rod Kent, B&B’s chairman, will serve as executive chairman until Mr Cranshaw is replaced.

Collins Stewart analyst Alex Potter said last week that the worsening conditions at B&B will have had a significant impact on the rights issue.

Mr Potter said that even if UBS and Citigroup were left carrying the Bradford & Bingley rights issue stock, it would be unlikely to tarnish the Royal Bank of Scotland’s £12bn rights issue or the £4bn issue by HBOS, the owner of Halifax and Bank of Scotland.