HBOS shares remain below offer price

Halifax Bank of Scotland’s £4bn (€5bn) investor cash-call today looked doomed to be one of the biggest failed rights issues ever, despite shares rallying as banks soared higher.

HBOS saw its shares rise 5% today amid a rebound in the banking sector after suffering hefty falls earlier this week, with rivals Royal Bank of Scotland and Barclays also up, by 10% and 8% respectively.

But for HBOS, the rise was not enough to take its shares above the 275p price being offered to investors.

And with only one day to go until the deadline, take-up among its two million smaller investors is expected to be woefully low. It will be the biggest flop since the government’s sale of a stake in BP was hit by the 1987 stock market crash.

While HBOS is guaranteed to get the £4 million regardless of investor take-up, its rights issue underwriters are now thought to be facing a sizeable overhang of shares to offload.

Speculation suggests that they may be left with 40% or possibly more of the new shares, despite reportedly having successfully sub-underwritten a significant chunk with existing shareholders and new institutional shareholders.

The two lead underwriters, Dresdner Kleinwort and Morgan Stanley, could potentially be left with paper losses of £300m (€379m) – far higher than their £100m (€127m) fee.

Justin Urquhart Stewart of Seven Investment Management said: “HBOS will get their money whatever, because it has been underwritten, but there’ll be a lot of blood on the carpet.

“They could be left with just about all of the shares – some people will have taken it up, but who would want to buy shares at a premium in the rights issue when they can get them cheaper on the open market?”

It is now feared that the failure to shift the HBOS rights issue stock may put the bank’s share price under pressure for some time.

Other firms may also now struggle to secure underwriting for similar fund raising plans, with the potential for hefty losses a deterrent for many underwriters.

Bradford & Bingley today saw its shareholders vote in favour of its third attempt at raising cash through a rights issue, while the deadline for Barclays’ share placing passed today at 11am.

Both banks have joined HBOS in facing difficulties as their share prices have been decimated in recent weeks.

Barclays shares rocketed today, having hit near-10 year lows earlier this week, taking it above the 282p price being offered to shareholders in a £4 billion share placing, but this is thought to have been too late to boost take-up.

Its share price is also still below the 296p price that Japanese bank Sumitomo Mitsui Financial Group agreed to pay for its £500m (€631m) investment.

Mr Urquhart Stewart said: “It will be more difficult for other groups hoping to do rights issues – underwriters don’t like taking the responsibility to shift left over shares.”