HBOS outlines £4bn rights issue

by Gill Montia

Story link: HBOS outlines £4bn rights issue

HBOS has unveiled its plans for a £4 billion rights issue.

The group, which owns Bank of Scotland and Halifax, wrote down £2.8 billion in connection with the credit crisis in the first quarter of 2008 (compared with £736 million for the whole of 2007) as a result of a fall in the value of its £7 billion portfolio of US home loans.

It is proposing to offer investors two shares for every five held, at a 45% discount, and will also be cutting its interim dividend, which will be paid in shares.

The move is aimed at raising the bank’s core Tier 1 capital ratio from 5.7% to between 6% and 7%.

The ratio is keenly scrutinised by regulators and investors alike and although HBOS’s capital-to-risk position is stronger than that of RBS or Barclays, the group’s chief executive, Andy Hornby, is known to have a cautious outlook on the economy and the credit crisis.

HBOS has a large number of small shareholders because it was formed from the demutualisation of Halifax Building Society ten years ago; around 800,000 shareholders hold 200 shares or less.

The rights issue is likely to prove unattractive to this group of investors, despite the fact that it is being promoted as a strategic move that will allow HBOS to retain its position as the country’s largest mortgage lender.

An extraordinary general meeting to approve the fund raising will be held in late June.