Bosses at Bradford & Bingley face a backlash from investors over the bank's cut-price £400million rights issue and share placing launched yesterday.

Institutions want more details from chairman Rod Kent on why the board he leads appeared to let underwriters off the hook by switching from the original £300million rights issue at 82p a share to a much cheaper issue at 55p.

UBS and Citigroup had agreed to underwrite the 82p issue six weeks ago for £9million but when it emerged that B&B lost money in the first four months of this year they felt they had grounds for changing the terms of the deal.

B&B shares had fallen so close to the original rights issue price that it seemed likely the underwriters would be left with a sizeable portion of the new shares.

Fears that they would abandon the cash call led to the intervention of the Financial Services Authority over the weekend. It was reported to have used "shepherding and encouraging" rather than "strong-arm" tactics. This resulted in the two investment banks agreeing to underwrite the £258 million share issue at 55p. But at the same time B&B pulled in Goldman Sachs, which is not taking part in the underwriting, as a separate financial adviser.

Investors have also questioned why it is costing B&B £37 million to raise £400million - equivalent to 9.25% of the new money being raised. This is higher than the 8% cost of the original rights issue and well above the fees being paid by Royal Bank of Scotland in its £ 12billion issue, which closes on Friday.

The Association of British Insurers is also questioning the £179million sale of new shares, also at 55p, to US private equity firm Texas Pacific. This seems to break the pre-emption rights principle, which gives existing shareholders first call on any new shares being issued.

Peter Montagnon, director of investment affairs at the ABI, said: "On the face of it, this is a pretty serious breach of the pre-emption rights principle. But the circumstances are complicated. We need to understand what has happened."

B&B shareholders will vote on TPG taking a 23% stake and being allowed to appoint two directors to the board.

The former building society's 850,000 small shareholders are also upset. Roger Lawson of the UK Shareholders Association said he was likely to seek an FSA probe. "If you are paying an underwriter to underwrite a share issue they should underwrite it," he said.