HALIFAX Bank of Scotland's board of directors will today decide whether to ask shareholders for up to £4 billion to shore up the bank's balance sheet.
Senior directors, headed by chief executive Andy Hornby, are believed to be meeting to determine whether HBOS should raise the cash, based on its outlook for the UK economy. The crunch meeting comes ahead of tomorrow's annual shareholder meeting in G
lasgow.
HBOS – the UK's biggest mortgage lender – will provide a trading statement to accompany the annual get-together and is thought to be preparing to write down the value of assets hit by the credit crunch by at least £1bn, and possibly as much as £3bn.
Speculation in the rights issue had little effect on the firm's share price when the trading opened this morning.
The company last night refused to comment on whether the board was to meet today or the state of its capital position. Weekend reports claimed the Edinburgh-based institution was still undecided about whether to raise cash or attempt to ride out the current credit market woes.
Its capital position is better than that of rivals Royal Bank of Scotland and Barclays – HBOS has tier one capital of 5.7 per cent, meaning it is not currently close to being legally required to improve its balance sheet. However, HBOS is more exposed than its major rivals to sectors of the UK economy that are expected to deteriorate in the coming months, mainly housing, property and construction.
Analysts have said the decision on whether HBOS should tap the market for cash could rely chiefly on its view of the economy going forward. In recent months, Hornby has been bearish about the short-term prospects for the economy in the UK.
Besides its major share of the UK mortgage market, HBOS has recently been increasing its exposure to construction through joint venture acquisitions. These include Crest Nicholson, the housebuilder which it helped take over for £1bn, and care home business McCarthy & Stone, both of which were bought in partnership with Sir Tom Hunter, Scotland's richest man. Earlier this month, the bank increased its exposure to housing and construction when it took a minority stake in private Edinburgh-based Miller Group for an undisclosed sum.
At the time of the Miller acquisition, HBOS presented figures that predicted a major and growing gap between demand and supply for housing in the UK, underlying its faith in the sector in the long term. However, the market is slowing, and it is the value of these assets that are expected to be written down, while HBOS would be under further pressure if the housing market showed sustained weakness.
Last week, after weeks of reassurances about the state of its capital position, RBS announced plans to raise £12bn through a record share placement and indicated it would operate with a stronger capital position in the future. While the move is expected to be successful, it has prompted renewed calls for RBS chief executive Sir Fred Goodwin to quit, or to name a firm succession plan.
Analysts have been expecting the RBS move, Europe's largest-ever share placement, to prompt other banks to follow suit. Barclays last week faced the embarrassment of being unable to tell shareholders whether it needed to conduct a share placement. Meanwhile, some analysts claim Alliance & Leicester is more highly leveraged than Wall Street investment bank Bear Sterns, which collapsed in March.
The full article contains 577 words and appears in The Scotsman newspaper.
