Shares in Bradford & Bingley (B&B) plunged 18 per cent to 50p today closing below the 55p level of its revised rights issue fund raising designed to pump £221 million into the ailing buy-to-let mortgage bank.

The slump in the shares followed US private equity group TPG pulling out of a rescue deal under which it would have taken a 23 per cent stake in the bank. That move came just hours after rating agency Moody's downgraded the lender's debt. TPG's withdrawal sparked the need for a fresh rescue plan which came from four of B&Bs biggest shareholders.

Under orchestration of the top financial watchdog, Financial Services Authority, Standard Life, M&G Investment Managers, Legal & General and Insight Investment, which together own 14.25 per cent of B&B, stepped in to fund £179 million as part of a £400 million fund raising deal priced at 55p a share.

But B&B's shares closed off 18.03 per cent, or 11p to 50p as investors took fright over whether the rescue deal is enough to stabalise the lender.

It emerged last night that TPG, had walked after Moody's downgraded the bank's debt to Baa1 - three notches above junk status.

B&B now has the lowest credit rating of any of the big British banks which could potentially make it more costly for it to raise funding in the financial markets.

All four investors that are supporting today's deal had backed an alternative plan to fund the entire £400 million capital raising plan and put Resolution, the investment vehicle run by Clive Cowdrey, in charge of B&B. The four shareholders had objected to TPG taking a stake in the struggling bank.

However, Resolution was forced to pull out of a deal last week, blaming the bank's management and its stubbornness for refusing to open its books to begin due diligence.

B&B and TPG had negotiated a £1.8 million break fee, however this was only payable if the bank accepted a deal with a third party, for example Resolution. Because TPG has walked away, it does not have to pay the fee.

Rod Kent, executive chairman at B&B, said today: "Whilst we are disappointed that TPG intends to terminate its subscription agreement, I am pleased that Citi and UBS [the rights issue’s underwriters] and our major shareholders continue to support our proposed capital issuance.

"Bradford & Bingley continues to be well-funded and the capital raising will reinforce our position as one of the better capitalised banks and one of the leading mortgage and savings banks in the UK."

Shareholders were due to vote on B&B’s rights issue on Monday, however an extraordinary general meeting has now been moved to July 14.

UBS and Citigroup are expected to support the company through a downgrade. The investment banks have already been criticised for threatening to halt their underwriting once, when B&B incurred worse-than-expected mortgage arrears.

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