Shares in New Century were suspended pending an announcement. The stock has already lost 89 per cent of its value this month and plunged a further 48 per cent in early trading.

The California-based New Century has been hit by increasing numbers of late payments from its customers as house prices have stopped rising while interest rates have increased. The US sub-prime lending sector, which focuses on home buyers with poor credit records, has been affected by soaring default rates.

The company's latest Securities and Exchange Commission filing shows that its cash reserves have fallen below $60m, putting it in breach of its banking covenants.

New Century's creditors, including Barclays, Bank of America, Goldman Sachs, Citigroup, Morgan Stanley and Credit Suisse, have written to the company to state that it is in breach of its borrowing arrangements.

New Century could be forced to repurchase around $8.4bn in loans if its creditors accelerate all of its repayment obligations. According to the filing, it has received two letters from Bank of America regarding $600m worth of debt while its dwindling cash pile has put it in breach of an agreement with Citigroup.

The sub-prime lender's future looks bleak and it could be forced to file for bankruptcy unless a last-ditch financing deal is agreed.

Last week, European banks scrambled to reassure investors over their exposure to the crisis at New Century. Barclays has provided a $1bn line of credit to the company but argued that its loan was "collateralised" against the homes of New Century's clients. It said it does not expect to incur any material losses on the loan.

HSBC has also been suffering as a result of its exposure to the US sub-prime lending sector. Last month, it was forced to issue its first profits warning in its 142-year history after a huge increase in bad loans at Household, now HSBC Finance, that was responsible for a $2bn surge in bad debts.

New Century's struggles are part of a wider meltdown among sub-prime lenders, which has seen the sector struggle. The contagion could spread to investors, such as pension funds, which bought securities backed by suspect home loans, analysts say.

Analysts at Lehman Brothers have warned that mortgage defaults in the US could total $225bn if the housing market remains flat for the next two years.