Fears that financial contagion could tear across the banking sector have prompted leading shareholders in Bradford & Bingley to line up behind its £400 million cash-call.

Leading institutional fund managers said yesterday that any losses they might suffer on their investment in B&B's rights issue would be dwarfed by their exposure to a potential collapse across the sector if the bank were allowed to fail.

One shareholder described its role as akin to “an old-fashioned central bank rescue” co-ordinated by the Financial Services Authority, the City's chief regulator.

He said: “There is a big risk of contagion. We are in a different scenario than we were two weeks ago. The bank has been downgraded. It needs to be supported and that is what we are doing.”

Hector Sants, the FSA's chief executive, is known to have taken personal responsibility for ensuring that B&B's capital-raising does not descend into disaster.

Another shareholder said that buying B&B's shares at above the market price would be worthwhile if it saved Britain from the kind of stock market volatility brought on by the near-collapse of Northern Rock, the mortgage bank that is now in state ownership.

He said that supporting the UK's financial services sector was the “moral” thing to do: “Any problem with the B&B rights issue would send the whole stock market into a panic and hit the tracker funds and that's something that the big fund managers are taking into consideration.”

Legal & General and Standard Life have committed to spending about £50 million each subscribing to B&B's rights issue even as the bank's share price plumbs levels not seen since it was demutualised in 2000.

M&G and Insight Investment have agreed to put up almost £25 million apiece, taking the total commitment from the bank's biggest four shareholders to almost £150 million. They will subscribe for new shares in B&B at 55p each.

The bank's shares tumbled almost a fifth yesterday, to 34p, meaning that leading shareholders face a prospective paper loss of almost £60 million.

Shareholders will be joined by six high street lenders, which have guaranteed to subscribe a further £150 million.

HSBC, Lloyds TSB, HBOS, Barclays, Royal Bank of Scotland and Abbey will each end up with an immediately unprofitable slice of B&B.

The two banks underwriting the cash-call, Citigroup and UBS, could end up with as much as £105 million in unsold shares sitting on their books, depending on take-up from other institutions and retail shareholders.

City sources familiar with the underwriting agreements said that shareholders had signed irrevocable commitments to take part. One said: “The rights issue will happen; that is not in doubt no matter what happens to the share price.”

B&B customers expressed concern yesterday. Outside one B&B branch in the City, a 60-year-old stockbroker said that he was worried, but not frantic. “I am concerned with the shares. It is not quite Northern Rock, but it doesn't look good,” he said.

“I have just asked the manager what the feeling is internally and she told me the rights issue would go ahead. If I had a large amount of money in the bank, I would transfer it just for peace of mind.”

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