Investors today piled into troubled mortgage lender Bradford & Bingley (BB-) amid speculation that it could be the next in line for a takeover.

Shares in the buy-to-let mortgage group surged by more than 7% to 29.75p on reports that the Financial Services Authority are looking to broker a deal for the FTSE 250 firm.

The City watchdog is said to have approached Spanish bank Santander (BNC), which already the owns the Abbey brand

and has just acquired Alliance & Leicester, Dutch banking group ING and Clydesdale and Yorkshire bank owner National Australia Bank (NAB) over a potential deal.

However, reports in the Times suggest that Santander and NAB are not interested in a deal while ING is sitting on the sidelines.

B&B has been hard hit by the credit crisis over the past year compounded by dwindling interest in the buy-to-let sector. It recently attempted to boost its balance sheet with a £400 million share rights issue, but saw the bid snubbed by shareholders.

Last month, the ailing group posted a pre-tax loss of almost £27 million for the six months to the end of June compared to a £180 million profit for the same period the year before. It lost almost £75 million on bad loans during the period, up from £5 million the previous years as more homeowners fell in arrears of three months or more on their mortgage repayments.

Carla Antunes da Silva at JPMorgan says: "With a forecast £380 million capital deficit and a broken, one-trick business model, the bank is in run-off mode. Net profitability is expected close to zero - Whilst the capital position post the rights issue is not as bad as it was, the issue of funding costs has not been resolved.

"With securitisation markets showing no signs of returning this will question the viability of bank like B&B and going forward the costs for monoliners such as B&B will put them at a significant disadvantage. We are also concerned by the pick up in arrears we have seen, especially given the rapidly deteriorating UK macro environment."

B&B shares have shed around 90% of their value of the past three months, currently trading at around 30p from the glory days of 385p last September. Last week the group's share price plunged to an all-time low after credit rating agency Moody's downgraded the mortgage lender's debt to one level above junk.

However, the group maintains that it is not aware of any takeover discussions and that it is not experiencing any funding issues.

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Dshox says: "B&B are heavily restraining new lending and are focussing on building up their depositor base. B&B also have one of the highest Tier 1 capital solvency provisions in the sector, which is a great boon. However, the vast asset portfolio is vulnerable to falling house prices as we enter the early stages of this house price correction and any suitors will crunch the numbers carefully."