HBOS was facing a further period of uncertainty last night, with underwriters holding more than 60 per cent of the bank's rights issue shares and the City waiting anxiously for the bank's interim results next week.
As a result of the banking giant's £4 billion rights issue flop, underwriters Morgan Stanley and Dresdner Kleinwort are likely to have the stake – worth more than £2.4bn – after this evening's 4:30pm deadline for them to sell the shares on.
That
gives them a substantial share in the Edinburgh-based company which has an estimated overall stock market value after the rights issue of about £15bn.
The large slice of shares remaining in the hands of the underwriters creates further uncertainty for the bank.
Last night analysts said that, after the rights issue flop – with fewer than 10 per cent of shareholders taking up the 275p offer – attention would turn to next week's interim results.
One leading fund manager said: "I think the overhang of shares left with the underwriters may depress the shares for a few weeks.
"But all attention is now on the group's interim results.
"People will be very wary about any evidence that mortgage arrears and repossessions are on the increase.
"If that was the case, the City would extrapolate worst-case scenarios for HBOS for up to two years."
Although HBOS maintained that the rights issue had done its job in recapitalising the bank, the failure puts further pressure on the architects of the rights issue – chief executive Andy Hornby and chairman Lord Dennis Stevenson.
One fund manager said: "Everybody can see what the market price was doing and how it turned against HBOS with the various worrying background noises. The blow to credibility is more from an apparent U-turn, the bank at first suggesting they did not need recapitalisation and then changing their minds."
According to City sources, a further 40 per cent or so of the overhang stock is believed to be the subject of informal agreements with sub-underwriters to buy the shares.
Banking analysts said if these shares were sold on this would take the stake owned by the two main underwriters down to about £1.2bn – about 8 per cent of HBOS's market value. Many of these sub-underwriters are understood to be long-term existing HBOS shareholders.
However, Robert Talbut, chief investment officer at Royal London, said: "HBOS was caught up in a collective issue of confidence in banks worldwide. But I don't think they are out of the woods yet.
"People are concerned about further deterioration in the housing market and what that is going to do for a bank with the largest mortgage book in the UK.
HBOS shares closed down 17.5p at 264.5p.
But HBOS spokesman Shane O'Riordain said the group had been realistic about the prospects for the rights issue take-up.
He said: "(It] has been conducted in the middle of a fierce financial storm. We have seen unprecedented volatility in banking stocks."
But he added: "The bottom line is that we have raised £4bn of capital. Just like ships need more ballast in heavy seas, banks need more capital in tougher times. We have now raised that capital."
The full article contains 545 words and appears in The Scotsman newspaper.
