The City reacted badly today to a £300 million rights issue from mortgage bank Bradford, not least because it appears to be paying £24 million to raise the money.

That is a staggering 8% of the net amount raised, which some analysts suggested was a measure of how hard it is becoming for banks to raise fresh capital.

B&B argued that, with 850,000 private investors, it faces a huge print and mail bill and added that the costs of underwriting the share issue by UBS and Citi had "been a minority part of the costs". Even at a toppy 1.75% underwriting fee, the banks would only be charging a bit over £5.25 million.

It is exactly a month ago that B&B issued a formal statement, saying it was "not intending to issue equity capital by way of a rights issue or otherwise".

Chief executive Steven Crawshaw claimed much had changed in that month. He said: "The world has moved quite dramatically in the last four weeks. The Bank of England special liquidity provisions, which we have used, have made a big difference. It cheers everyone up if we combine that improved liquidity with improved capital - they go hand in hand. The second big change is that two other banks have announced rights issues, and that has set a tone."

B&Bis issuing the new shares at just 82p, a 48% discount to last night's closing price. Shareholders are being offered 16 new shares for every 25 they own.

Like rivals Royal Bank of Scotland and HBOS, which are raising £12 billion and £4 billion respectively to repair their balance sheets, B&B will pay its next dividend in shares rather than cash and is set to reduce future dividends.

The bank said it needed the cash to improve its regulatory capital needs and allow it to compete more strongly in the toughening mortgage market.

But analysts were cautious. Sandy Chen at Panmure Gordon set a post-rights share-price target of just 89p. The shares, which fell sharply yesterday, lost another 15¼p to 143½p.