Banco Santander has snubbed 1.8 million small shareholders in Britain, excluding them from taking part in its €7.2 billion (£6 billion) capital-raising, it became clear yesterday. The shareholders, who became Santander investors when the Spanish bank took over Abbey and Alliance & Leicester, will not be able to take part in the rights issue.

Santander has written to most of the 1.8 million who hold its shares through a nominee service arguing that it was logistically too difficult to offer them new shares. Instead, their rights will be compulsorily sold in the market and any proceeds forwarded to them.

Santander added insult to injury, according to some shareholders, by expecting them to pay the brokerage costs of selling their rights and the fees for converting the proceeds into sterling. A slump in the Santander share price in recent days means that the proceeds from the rights sales could be modest, or even non-existent after dealing costs if the slide continues.

The Spanish move flouts the principle of pre-emption rights - the unwritten City rule that existing shareholders should always be given first refusal when companies seek new capital. Pre-emption is a relatively new concept in Spain.

A Santander spokesman explained that the acceptance period for rights issues in Spain was 15 days. That was, he said, too short a time logistically for the millions of UK shareholders who hold their shares in the Spanish bank through Santander Nominee Service.

The blow to small shareholders follows the controversial decision by Barclays to bypass its existing investors, including 1 million private shareholders, and tap Gulf investors for £6 billion on favourable terms.

British shareholders are being offered the chance to buy Santander shares later, but at an unspecified price, under a purchase facility set up by the Spanish bank.

The Santander snub drew an angry response from shareholders yesterday. Roger Lawson, of the UK Shareholders Association, said: “Private shareholders are always disappointed when the principle of pre-emption rights is ignored. Why shouldn't they be on a level playing field with institutions? What's the excuse this time? Is Santander in such a desperate hurry?”

One small shareholder, Anthony Hickman, who with his wife is a joint shareholder in Santander, said: “We are disappointed. It seems to us not the way you treat a shareholder.”

He was also concerned that the sale price of the rights could be manipulated, reducing the proceeds to small investors. Mr Hickman, a retired architect from Maidenhead, received Abbey National shares when it was demutualised in 1989 and received Santander shares when Abbey was sold to the Spanish bank in 2004.

Charlotte Black, of Brewin Dolphin, the stockbroker, said: “Santander are certainly not treating their shareholders very fairly and you would have thought they would want the cash. However, the time constraints are certainly tight and a good argument for using a professional discretionary service.”

Santander announced on November 10 that it planned to raise fresh capital to bolster its capital ratios. The bank, although a signatory to the British Government's bailout plan, declined to accept a capital injection from the Treasury, preferring to shift £1 billion of capital within the group to strengthen Abbey's capital ratios. Board members include Lord Burns, the former Abbey chairman, who joined when it was taken over.

Those investors able to take part in the rights issue are being offered one new share in the bank at a discounted price for every four they currently own.

Santander shares slumped by 10 per cent to €5.41 yesterday. The discount at which the €4.50 rights price sits relative to the market price has collapsed from 46 per cent ten days ago to only 17 per cent last night.

The rights issue is fully underwritten by Bank of America and its takeover partner, Merrill Lynch.

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