LONDON BRIEFING:WHAT ARE underwriters for? After the extraordinary U-turn performed by besieged buy-to-let mortgage lender Bradford Bingley on Monday, that is the £9 million question echoing around an angry City of London: £9 million is the fee investment banks UBS and Citigroup were being paid, as underwriters, to mop up any unwanted shares in BB's emergency £300 million fundraising.

If shareholders - as a de-mutualised former building society, BB has an army of 850,000 of them - failed to take up new shares, the company would still get its much-needed cash, only from the underwriters.

As BB shares slithered ever southwards, it looked for a brief while as though the underwriters really would have to earn their money this time. But, as if by magic, they were bailed out by the BB board on Monday as the company took the unprecedented step of repricing its cash call.

Instead of raising £300 million from shareholders, at a deeply discounted price of 82p a share, the cash call has been reduced to £258 million, at just 55p a share. The US private equity house TPG is also buying up a 23 per cent stake in return for £179 million, making it the bank's biggest shareholder. Shares in BB, already savaged by the credit crunch, duly crashed by a quarter.

The decision by the BB board was accompanied by a stark profits warning. It sent shock waves through the Square Mile: never before has a rights issue been repriced in such a manner, nor underwriters let off the hook with such ease.

The explanation proffered by BB - that it would not be in the interests of investors to have "an underwater rights issue" - simply does not wash. It was certainly not in their interests to see their shares plunge to just 67p on Monday, nor for the cost of the repriced cash call to spiral from £24 million (including those £9 million underwriting fees) to £37 million.

A more likely explanation is that the underwriters made it crystal-clear to BB that, fee or no fee, they were not about to mop up millions of unwanted BB shares - particularly if there was any question that they were not in full possession of the facts when they agreed to guarantee the initial 82p-a-share terms.

The board certainly does not appear to have been in full possession of very much at all. Having vehemently denied in April that there would be any fundraising, it hit the market with the £300 million cash call last month. At the time, the board told shareholders there had been only a modest decline in its loan portfolio and indicated that the worst was behind.

Monday's profits warning shows how misplaced its confidence was - and how inaccurate the bank's early-warning systems were.

With its remaining credibility evaporating, the BB board would have been in no position to withstand any threats from the underwriters of pulling the plug.

BB chairman Rod Kent has admitted that the bank's systems and management need an overhaul. Too little, too late, was the reaction in the City, where BB now faces a backlash.

One leading analyst yesterday urged shareholders to vote down the repriced rights issue and force the management to go back to its original scheme. Collins Stewart analyst Alex Potter described the renegotiation of the rights issue as "little short of a disgrace". The UK Shareholder Association, which represents small investors, is calling on the Financial Services Authority to launch an investigation.

Whatever the board or underwriters did or did not know about the true state of affairs at the bank, Monday's warning leaves no doubt that BB is in serious trouble. Kent may insist that it is no Northern Rock, but there is a widespread fear that worse is yet to come.

The position BB now finds itself in speaks volumes for the true state of the once-booming buy-to-let market. As Britain's biggest buy-to-let mortgage lender, BB has seen its arrears levels in that market rocket by 50 per cent in just four months.

If anyone had any lingering doubt that the UK housing market is in full crisis mode, those have now been dispelled. The only remaining question is: just how bad will it get?

Fiona Walsh writes for the Guardian newspaper in London