HBOS suffers rights issue humiliation
Morgan Stanley and Dresdner Kleinwort to lose tens of millions of pounds on the deal
High street banking group HBOS is today expected to announce that as few as 10 per cent of investors took up its £4bn share offer, making it one of the biggest rights issue failures in corporate history.
Shareholders, who were offered two shares at the heavily-discounted price of 275p for every five held, shunned the cash-call amid concerns over the tumbling share price of the UK’s biggest mortgage lender.
Underwriters Morgan Stanley and Dresdner Kleinwort are likely to be left needing to place £3.6bn of shares on the market in the next few days, or face taking them on to their own balance sheets.
The investment banks are believed to have sub-underwritten about 40 per cent of the issue and have lined up large institutions for some of the rest. But they are still set to have lost £70m.
When HBOS launched its cash-call in April, its shares were worth about 500p. They subsequently fell below the rights issue price, rendering the new equity unattractive. Shares in the merged Halifax and Bank of Scotland eventually recovered on Friday, closing at 282p, but could be forced down again if a large chunk is dumped onto the market.
The rights issue is set to be the biggest flop since the government’s sale of a stake in BP was scuppered by the 1987 stock market crash. Royal Bank of Scotland saw 95 per cent of its rights issue taken up, while Barclays managed just 19 per cent, leaving Asian and Middle Eastern funds to pick up the rest.