THERE were growing fears last night that HBOS's £4 billion rights issue had flopped after rival Barclays revealed that only 19 per cent of its existing investors backed its recent cash-raising.
In a setback for HBOS's chief executive, Andy Hornby and chairman, Dennis Stevenson, the deadline for HBOS's cash call passed at 11am with City experts warning that up to 80 per cent of the new shares could be left with the underwriters.
Analysts
said the general bounce in banking-sector shares yesterday was "irrelevant" because it came too late to affect the rights issue.
The sector's recovery came after US banking giant Citigroup revealed a lower-than-expected $2.5bn second-quarter loss.
HBOS bounced up 5 per cent to close at 282p, putting the stock above the 275p rights issue price. Shares in Royal Bank of Scotland, Lloyds TSB and Barclays all leapt 10 per cent.
However, one analyst said: "HBOS has two million shareholders, speaking for 27 per cent of the company. That is probably four times the number of private investors Barclays has.
"And small shareholders quite often do nothing in rights issues even without the current high-profile problems in the sector.
"If Barclays could only get a 19 per cent take-up, it is quite probable HBOS would only be in this sort of ballpark at best."
Another analyst said: "The bounce in the shares today didn't matter because it came too late.
"HBOS gets its money but the underwriters earn their money this time."
The main underwriters to the issue are Morgan Stanley and Dresdner Kleinwort.
Colin Morton, at Rensburg Fund Management, said: "In my view, most people will have made a decision two or three days ago, when HBOS shares were 30p or 40p below the rights price. I can't see many having taken up the rights.
"The underwriters, though, will be relieved. At one point, it looked like they would be 40p underwater. It's been an incredible 48 hours for bank stocks."
The overhang of shares left with the underwriters is expected to weigh on HBOS's share price for some time, analysts saying the
market will know the underwriters will want to sell their unwanted stock as soon as possible.
HBOS and the underwriters would not comment yesterday on the take-up of the cash call. A formal announcement will be made early on Monday morning to the Stock Exchange.
The bank said in April it was raising £4bn in a discounted issue to shore up its balance sheet.
Since then, however, its shares have almost halved, hit by increased concerns over the UK economy and a raft of rights issues in the sector.
That included RBS's £12bn cash call – the biggest ever.
Bradford & Bingley is also trying to raise £400 million through a rights issue and Alliance & Leicester has attracted a £1.25bn takeover bid from Banco Santander, the Spanish banking giant.
The full article contains 492 words and appears in The Scotsman newspaper.
