HBOS continues to fall but City confident over bank's cash call

Published on Tuesday 10 June 2008 21:05

SHARES in banking group HBOS fell a further near-5 per cent towards its rights issue price yesterday, but City experts said a re-run of Bradford & Bingley's 11th-hour changes to its own cash call price was "very unlikely".

Shares in the Halifax/Bank of Scotland banking group closed down 15p at 292p – now just 17p above the 275p at which it is offering its army of two million private investors new shares.

B&B triggered controversy when it recently scaled back its rights issue from 300m to 258m, and from 82p a share to 55p, as its share price in the market moved to within a few pence of the issue price.

But analysts said there were significant differences between the two banks. One analyst said: "The declining share price was only one factor at B&B. Their decision to scale back the rights price was also down to a profits warning and a perception of more systemic risk at the company than is the case with HBOS's situation.

"B&B had a less diversified revenue stream than HBOS, which also benefits from a bigger international presence, a good savings portfolio and an unsecured loan book.

"There are more positives surrounding HBOS's rights issue as a result. And there is not the escape clause of an unexpected profits warning that allowed the underwriters to pressure B&B into changing the terms."

Keith Bowman, banking analyst at Hargreaves Lansdown, agreed. "Although you can never say never, I think HBOS going the route of re-engineering the cash call terms is highly unlikely.

"Apart from anything else, HBOS will have seen the PR difficulties B&B got into with what they did (which also involved bringing TPG Capital in as a 23 per cent shareholder in return for 179m of shares bought at the reduced 55p price].

"The underwriters are paid to pick up the tab if the shares are not taken up by existing shareholders and that's what I think will happen at HBOS."

The HBOS share issue is underwritten by Morgan Stanley and Kleinwort Dresdner.

When HBOS announced its rights issue the stock was trading way above the rights issue price at 486p.

• Royal Bank of Scotland, whose 12bn rights issue was taken up by more than 95 per cent of shareholders earlier this week, issues a trading update this morning.