HBOS faces rights issue failure

by Gill Montia

Story link: HBOS faces rights issue failure

The take-up of HBOS’s rights issue may be so poor that it could leave underwriters, Morgan Stanley and Dresdner, with £3.6 billion worth of the bank’s stock.

According to reports in the press over the weekend, only around 10% of shareholders participated in £4 billion fundraising.

The group, which owns Halifax and Bank of Scotland, has a large number of small private investors because it was formed from the demutualisation of Halifax Building Society a decade ago; around 800,000 hold 200 shares or less.

HBOS attempted to rally support from small shareholders by allowing them to sell part of their entitlement to their rights to provide the cash needed to allow them to take up their remaining rights.

However, since the launch of the cash call in April, the bank’s shares have plunged in value.

When the rights issue price was announced at 275p, it was heavily discounted against a share price of 500p.

On Wednesday of last week, the value of HBOS stock dipped to 228p as shares in British banks took an all-round pounding over concerns about the US and UK financial sectors.

Furthermore, Friday’s closing price of 282p is unlikely to be maintained in the coming days if Morgan Stanley and Dresdner fail to place the shares they have been left with at the rights issue price.