Bradford & Bingley has expanded its rights issue to £400 million after the American investor it had lined up to take a stake in the business got cold feet.

Back in June, the buy-to-let lender announced plans to raise additional capital of £400 million - £258 million through a rights issue and £179 million from Texas Pacific Group (TPG), a US private equity investment firm.

However, TPG has now walked out on its deals to take a 23% stake in the bank, forcing Bradford & Bingley to change its plans.

It will now raise £400 million through its shareholders, with the deal backed up by a group of UK investors. A number of its largest shareholders, including Legal & General, Standard Life, M&G and Insight Investment, have supported the deal to issue new shares at 55p per share.

Citi and UBS will continue to underwrite the enlarged rights issue. Further details will be announced in due course.

Executive chairman Rod Kent said: "While we are disappointed that TPG intends to terminate its subscription agreement, I am pleased that Citi and UBS 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."

The bank's share price fell in light of the announcement by nearly 20% throughout the day to around 49p.

Nick Raynor, investment adviser at The Share Centre, says the fact that the lender is still getting backing from some of its major shareholders is a good sign.

He adds: “For existing Bradford & Bingley shareholders, we take the view that they are best to hold on to what they have got for now to avoid selling at a loss. For potential investors, we still see Bradford & Bingley as very high risk.

"If we draw the conclusion that TPG has jumped ship at the first sign of trouble, investors need to ask themselves whether they too are best staying well clear.”

• rights issue
• Bradford & Bingley