The credit crunch struck again today as personal loans group London Scottish Bank warned that it is almost certain to have made a loss for last year, needs to raise money and could be unable to pay it final dividend.
The shares plummeted 21%, falling 16p to 61p.
However, chief executive Robin Aston, who only joined from larger rival Provident Financial at the start of this month, denied that this was another Northern Rock about to happen.
He said: 'Three of our four business are trading well. Our balance sheet is strong and we have access to funding and no liquidity problems.'
The problems lie in LSB's unsecured loans division. Drawing up the accounts for the year that ended in October, the group decided it would have to increase its write-offs on bad loans by up to £22m, to as much as £50m.
That more than wipes out pre-tax profits, which analysts had forecast would be about £17m, leaving it with a probable loss of around £5m. The group posted pre-tax profits of £17.2m last year.
Following the write-off, LSB has been told by the Financial Services Authority that it will not now have enough regulatory capital to meet the new Basel II requirements, which come into effect tomorrow.
It is around £13m short of the required level, and will immediately start discussions with the regulator over how to meet its needs.
The alternatives are to raise money through a rights issue or to sell off some of the profitable parts of the business. Ashton said: 'Nothing is ruled in and nothing is ruled out.'
In the meantime, it is likely that the FSA will tell the bank it must restrict its lending activities until its capital ratios are up to scratch.
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