HBOS set to raise £4bn in rights issue

by Gill Montia

Story link: HBOS set to raise £4bn in rights issue

HBOS is reported to be planning a £4 billion rights issue, the details of which are likely to be announced to its 2.1 million shareholders this week.

The group’s Halifax business is the UK’s largest mortgage lender and the bank is known to have concerns about the downturn in the housing market.

This week, housing intelligence firm Hometrack, reported a 0.9% fall in annual house price inflation in April.

Royal Bank of Scotland (RBS) has already begun the process of raising £12 billion from shareholders, an event which prompted speculation that other High Street banks would follow suit.

HBOS’s capital-to-risk ratio is stronger than that of RBS or Barclays but the bank is expected to report writedowns of up to £3 billion on its mortgage-backed investments in the coming days.

In addition its investments in housebuilders Crest Nicholson and McCarthy & Stone are likely to show poor returns as UK house prices cool.

The group’s chief executive Andy Hornby holds a gloomier than average outlook on the economy and credit crisis, and raising new capital at this point would fit with his cautious view.

However, HBOS has a preponderance of small shareholders, because the group was formed by the demutualisation of Halifax Building Society ten years ago, and it remains to be seen how much these investors would contribute to a fund raising.