By Roland Jackson
July 21, 2008
SourceLONDON (AFP) - An attempt by British bank HBOS to raise 5.0 billion euros from shareholders to bolster finances hit by the credit crisis flopped on Monday, and underwriting banks were set to pick up the tab.
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The country's biggest mortgage lender, seeking to boost its capital after heavy credit squeeze writedowns, said investors had agreed to buy just 8.29 percent of its 4.0-billion-pound or 7.9-billion-dollar rights issue.
A bank spokesman blamed the poor take-up on a "fierce financial storm" that has battered the financial sector amid fallout from the collapsed US subprime housing market and the related credit crunch.
HBOS added in a statement that underwriting banks Dresdner and Morgan Stanley would try to sell the remaining shares. The pair will be obliged to purchase the stock on Tuesday if they were unable to find buyers.
However, in early trading on Monday, HBOS shares sank once more under under the issue price of 275 pence.
The share price dived 2.76 percent to 274.21 pence on London's FTSE 100 leading shares index, which was down 0.23 percent at 5,364.00 points.
The rights issue "has been conducted in the middle of a fierce financial storm," said HBOS spokesman Shane O'Riordain.
"We have seen unprecedented volatility in banking stocks."
He added: "The bottom line is that we have raised 4.0 billion pounds 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 bank had announced the issuing of new shares to current shareholders in April.
Shares have since tumbled under the issue price in volatile trade amid deepening concerns over Britain's flagging property market and slowing economic growth.
Under the terms of the rights issue, HBOS investors were offered two new shares at 275 pence for every five held. Shares stood at 500 pence when the deal was announced.
But they traded last week below 275 pence before closing at 282 pence on Friday, which was the issue deadline.
HBOS claims two in five British households as a customer through its subsidiary Halifax.
Major commercial banks have suffered heavy losses related to the collapsed US subprime or high-risk home loan market -- and the subsequent tightening of lending criteria.
Other British banking institutions have experienced more success in their attempts to raise cash from shareholders.
Barclays announced last week that only one fifth of its 4.5-billion-pound rights issue had been snapped up by existing investors. However, the remainder was bought by "anchor" investment groups from China, Japan, Qatar and Singapore.
The Royal Bank of Scotland also had to finance the mammoth takeover of Dutch bank ABN Amro, but received a huge take-up rate of 95 percent from shareholders in its record-breaking 12-billion-pound rights issue.