Bradford & Bingley has said its major shareholders are stepping in to salvage the lender's £400m funding plan.

US private equity firm, Texas Pacific Group, was due to buy 23 per cent of the company as part of a wider funding package, but said on Thursday night that it was withdrawing its £179 million cash injection after the lender's investment status was downgraded by a ratings agency.

The ratings agency Moody's downgraded Bradford & Bingley's unsecured and long-term debt ratings, which effectively tells the market that the firm is a greater investment risk.

But B&B said a group of its largest shareholders including M&G Investment Managers, Legal & General Investment Management, Insight Investment and Standard Life Investments were now backing the deal.

The bank, which has been badly hit by the credit crunch, is raising the money to help shore up its finances.

TPG's cash had been lined up alongside a deeply discounted rights issue - a call on existing shareholders for cash - which would have raised another £258 million.

B&B said it was proceeding with its capital plans through a bigger rights issue, which would raise £400 million after fees. This is being underwritten by banks Citi and UBS.

B&B's executive chairman Rod Kent said: "Whilst 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 funding plan involving TPG had attracted a raft of criticism from investor groups.

The Association of British Insurers (ABI) branded it "unacceptable" because it removed the right of pre-emption for shareholders - in which new shares should be offered to existing shareholders in proportion to their existing holdings.

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