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The warning comes as the amended rights issue and proposed sale of a 23 per cent stake to Texas Pacific Group (TPG) were given an 'amber top' on the Institutional Voting Information Service (IVIS), which is operated by the ABI.

Bradford & Bingley's board has supported the rights issue and sale to TPG over the alternative £400m rescue package proposed by entrepreneur Clive Cowdery’s investment firm Resolution.

Peter Montagnon, director of investment affairs, said: "The proposals by Bradford & Bingley involve breaches of fundamental principles of sound governance which are unacceptable to shareholders."

He said this would normally automatically attract a red top, indicating the most serious level of concern, but the ABI had downgraded this to amber after giving consideration to Bradford & Bingley's exceptional circumstances.

Montagnon continued: "Fundamental principles breached include the right of pre-emption whereby new shares should be offered to existing shareholders in proportion to their existing holdings, and the preferential treatment afforded to TPG both in terms of protection against dilution and the opportunity to participate in future fund raising on preferential terms.

"This imposes a substantial transfer of value from existing shareholders to TPG, while the fact that the rights issue cannot proceed without simultaneous agreement to the TPG deal limits the ability of shareholders to exercise their right of judgement."

Montagnon added: "We remain very disappointed that the board of Bradford & Bingley failed to ensure a timely flow of management information that could have prevented the need for this unsatisfactory arrangement and urge the regulatory authorities to take additional care in encouraging bank boards not to put themselves in such a position in future.

"Shareholders must now make a considered judgement. Insofar as they are willing to extend their support on this occasion, this should be on the clear understanding the breach of fundamental protections is not a precedent."

Bradford & Bingley's shareholders are set to vote on the rights issue and TPG proposals at an extraordinary meeting on 7 July.