Bradford & Bingley has sold nearly a quarter of its business as it moves to shore up its finances in the face of a sharp downturn in trading.
The UK's biggest buy-to-let lender said full-year profits were set to suffer as more borrowers fall behind with their repayments.
The update came as Bradford & Bingley (B&B) confirmed it was selling 23% of the business to private equity firm Texas Pacific Group (TPG) in a move set to raise £179 million.
B&B said it had racked up an £8 million pre-tax loss in the four months to the end of April after suffering a further £89 million hit from the credit squeeze and a £36 million charge from increasing arrears.
The group also restructured its recently-announced rights issue, with shareholders - including 850,000 private investors - now being offered shares at 55p, rather than 82p previously.
The move will raise £258 million instead of the £300 million proposed when the controversial exercise was announced last month.
Today's developments came a day after B&B said chief executive Steven Crawshaw had stepped down for health reasons. The former building society saw shares plummet more than 30% at one stage today as stocks fell across the wider banking sector.
Halifax Bank of Scotland was among those worst affected, with shares down 8%, despite reassuring that its rights issue was going to plan.
Royal Bank of Scotland also sought to reassure over its buy-to-let arrears levels as investor fear spread to other banking groups.
B&B said arrears levels had risen to 2.16% against 1.63% at the end of December for those three months or more behind with repayments. It cautioned that the numbers of borrowers missing repayments was set to increase further amid the housing market slowdown and economic uncertainties, although it said arrears should increase at a slower pace in the second half of the year.
The number of buy-to-let borrowers three months or more behind with repayments increased by 52% to 3,037 in the four-month period, while repossessions rose by a quarter to nearly 700.
Underlying profits reduced to £56 million, compared with £108 million in 2007, and the full-year outlook is now "more cautious", according to the group
But B&B stressed that its savings and lending businesses "remained sound", adding that it remained funded into 2009 despite the wholesale money market crisis.
Its deal with TPG will see £179 million of funds pumped into the group in return for a 23% stake in the West Yorkshire-based lender.
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Texas Pacific Group's £179 million tie-up with Bradford & Bingley marks the buyout firm's first move into UK financial services despite an increasing focus on the sector in recent years.
TPG - one of the world's biggest private equity players with $55 billion (£28 billion) in funds under management - has invested 4 billion dollars globally in the area since 2005.
The biggest such move was in April, when a TPG-led team pumped $7 billion into Washington Mutual, shoring up the balance sheet of another financial institution nursing losses from the credit crunch.
TPG itself invested $2 billion.
Now it is now set to become Bradford & Bingley's largest shareholder, with a 23% stake.
A "relationship agreement" between the two firms gives it the right to appoint two non-executive directors to the lender's board, although it will be bound for 12 months over its investment in a "lock-up" agreement.
TPG's website proclaims the firm to be different to most buyout players due to its "comfort in dealing with complexity and distressed companies" - which may be of some solace to beleaguered B&B shareholders.
Officially, TPG hopes the capital injected will enable a solid platform for growth and profits. But the move comes at a time when B&B's shares have been hammered by housing fears and a PR fiasco over their rights issue - which could attract takeover speculation and net an instant reward for the private equity firm.
TPG was founded in 1992 by David Bonderman, worth $3.3 billion and America's 105th richest man last year, according to Forbes magazine.
The company was one of the members of the private equity consortium which attempted to buy supermarket giant Sainsbury's last year. It later withdrew from the bid, which foundered on opposition from the Sainsbury family and the group's pension trustees.
In February last year, TPG and fellow private equity firm Kohlberg Kravis Roberts also unveiled a deal to buy Dallas-based power firm TXU for 45 billion dollars (£23 billion) including debt - the biggest-ever debt-financed buyout.
