The head of the City's most influential lobby group for investors has accused the Bank of England of not acting quickly enough to shore up Britain's struggling banks in scathing comments that suggest the nationalisation of Bradford & Bingley (B&B) could have been avoided.

Peter Montagnon, the director of investment affairs at the Association of British Insurers, said the Bank should have been "more proactive in providing emergency liquidity for solvent institutions".

He expressed frustration that B&B's £50 billion mortgage and loans book was taken into public hands, despite the bank remaining fully funded comfortably into next year.

"This is a bank with one of the highest capital ratios, if not the highest. It is a matter of serious concern that it has moved to terminal care within a matter of days," he said.

Mr Montagnon stopped short of condemning the Government's seizure of B&B but suggested that institutional shareholders' trust in regulatory authorities had taken a beating.

B&B's mortgages and loans business was taken into public ownership over the weekend, amid fears that the lender's weak financial position and sliding share price would prompt a run on the bank's deposits.

B&B's shares were suspended at 20p yesterday morning, valuing the bank at less than £300 million. The shares have lost 93 per cent of their value in the past year.

Mr Montagnon's comments came as Bradford & Bingley's army of small shareholders reacted with fury after the bank's nationalisation looked set to leave their investments totally worthless.

In rare public comments, some of B&B's biggest institutional shareholders also aired their unhappiness at the part-nationalisation.

Legal & General and Standard Life said they were both "disappointed" at the nationalisation, saying the bank was well capitalised and in normal circumstances could have been expected to trade through its market turbulence.

David Cumming, head of UK equities at Standard Life Investments, said: "It is disappointing that, because of liquidity issues and despite a strong capital position, Bradford & Bingley has been forced into public ownership.

"As long-term shareholders we stood by the company and supported its recent fund raising. This regrettably did not lead to the desired outcome."

Roger Lawson, a director at the UK Shareholders Assocation, which represents some of B&B's 850,000 individual owners, said he was hoping to set up an action group to campaign for compensation for those who lost their nest eggs investing in the bank.

He said he had been deluged with calls from angry shareholders, who believed they had been misled by B&B's board over its financial health.

"It's not clear what crystallised this nationalisation and why it should have been done this way," he said.

Mr Lawson noted that the nationalisation of B&B came just six weeks after it embarked on a £400 million rights issue that was designed to shore up its financial position.

"Many of them subscribed for the rights issue, which they were assured would put the company on a sound financial footing. They feel they have been misled to a large extent," he said.

The Financial Services Authority, which approved B&B's prospectus, said it was happy with the rights issue documentation.

Seizing control of B&B has also left professional City fund managers nursing heavy losses. "It's game over. The chances of recovering anything are extremely limited," said one institutional investor. He said he would have to write off his losses on his B&B holdings.

Legal & General, M&G, Insight Investments and Standard Life, B&B's four biggest investors, subscribed for about £180 million of the rights issue at 55p a share, despite a prevailing share price that was much lower.

Four high street banks — Barclays, Lloyds TSB, HSBC and RBS — also stepped in, agreeing to buy about £40 million each. Abbey, owned by Banco Santander, bought a further £20 million of shares. These investors would all have lost substantial amounts.

The Treasury is expected to appoint an independent valuer to set a realistic level for B&B's shares, which could form the basis for possible compensation. This is expected to be minimal.

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