IT promises to be another rollercoaster ride for shareholders in HBOS this week following the expected flop of its rights issue.
When the vote is revealed tomorrow it is expected to show that fewer than 20% – and possibly no more than 10% – have taken up the shares, making it one of the worst on record.
With only 19% of Barclays investors acquiring new shares in its cash ca
ll, the outlook for HBOS – with its much larger private shareholder base – appears much gloomier. Private shareholders are less willing to buy new shares than institutions and will have been well advised to steer clear when they could have bought stock in both banks more cheaply on the open market.
It means the underwriters and sub-underwriters who have guaranteed that HBOS gets its £4bn will have to buy the unwanted stock. With the shares staging a late rally on Friday, they can still make a tidy profit if they sell while the price remains above the 275p rights price.
It could cause the shares to plunge again, although there are likely buyers among those who need to restore their holdings to avoid dilution and bargain hunters who believe the banks are nearing the bottom of the cycle.
With the entire banking sector suffering the mother of all scary rides, there's nothing much the HBOS board can do except to cling on and hope for the best.
The bank is now worth little more than £10bn and the speed of descent may be giving chief executive Andy Hornby a few butterflies, but he will want to focus on positives that will calm nerves. HBOS will get its money and will have a healthy balance sheet as a result. It remains one of the least exposed to unsecured lending, and while it may be heavily reliant on the fragile mortgage market, its loan book is of a high quality.
With the banks preparing for the interim reporting season they'll be keen to show that the worst is behind them and that they're ready to rebuild. Expect a few straws to be clutched, but there will also be reasons to be optimistic that they can claw their way out of this mess.
It was always the case that the outcome of the credit crunch would be casualties and sacrificial lambs. Alliance & Leicester is merely the latest, but don't expect it to be the last. Santander's swoop on A&L may yet be a springboard for a round of mergers that could also spread to the building society sector. There is loose talk of HBOS being a takeover target, with HSBC a possible buyer, but it looks a long shot and, in any case, who's got the money, even at this price?
Royal Bank of Scotland was proved correct in making an early cash call and the 95% take-up of its new shares has certainly given it bragging rights in the sector, the City and in Edinburgh. But it is not yet out of the woods, with possibly more exposure in the US to be fully evaluated.
That aside, attention will soon switch to fundamentals and to getting on with the day job. With balance sheets repaired, all the banks now require confidence to be restored and liquidity to return to the market.
They'll also be crossing fingers that the US banking system stabilises, as any fall-out from the US soon sweeps throughout the global economy. News of better-than-expected losses from Citigroup on Friday is about as good as it gets right now, but for every Citigroup there's a Fannie Mae and Freddie Mac to scare the life out of anyone with an interest in the banking sector. And that means all of us.
Failed network leaves Scots dis-ConnectedAMONG the events of the past week reported here – though scarcely mentioned elsewhere – was the collapse of Connect Scotland, the networking scheme that brought technology investors and fledgling companies together in a format similar to that later adopted by BBC TV's Dragons' Den.
There are frequent and energetic calls for Scotland to create more businesses, for those with the cash to invest more readily, and for the country to be generally more adventurous. What a pity so few of those worthy voices were around last week.
Connect ran well-attended events that provided the vital funds for many a nervous start-up. It brought some of Scotland's best ideas to the notice of those with the money and the vision to back winners. It was the type of organisation that deserved its place in the scheme of things and it would be a proper recognition of its efforts if somebody – perhaps our economic development agency Scottish Enterprise – filled the gap it leaves behind.
The full article contains 802 words and appears in Scotland On Sunday newspaper.
