HBOS deadline fails to stop shares' slide

Published on Wednesday 4 June 2008 21:54

BANKING major HBOS will seek investors' approval for its £4 billion rights issue on 26 June, with the deadline for its army of two million private shareholders to sign up for the new shares set at 18 July.

However, the deadline announcement yesterday failed to stop HBOS's shares continuing to come under pressure.

They closed 11.25p or 3.2 per cent lower yesterday, following a 12 per cent fall over the previous two days in the wake of the Bradford & Bingley crisis.

Last night's closing price of 340.5p compares with HBOS's rights issue price of 275p, and a trading price of 486p at the time the cash call was announced in late April.

Analysts said the group's share price could now remain under pressure until the new shares are admitted to trading on 21 July.

The bank said it was shortly to post a circular to shareholders on the key dates of the rights issue – plus a facility for free trading of shares.

It said it expected to hold its shareholder meeting to approve the issue at the Edinburgh International Conference Centre.

A prospectus, expected to include a trading update, will be published in the week starting 16 June.

Broker Fox-Pitt Kelton said in a note yesterday: "The current round of capital-raising by the UK banks is not meeting with widespread shareholder enthusiasm and HBOS could weaken further during the rights process, especially as housing market indicators also weaken and raise fears of increased impairments and the possibility of a profit warning."

HBOS said on Monday that its trading remained satisfactory in the wake of B&B's shock profit warning and the redrawing of its own rights issue terms.

Retail investors own about 27 per cent of HBOS's shares, and a rising strain on household finances could reduce the level of acceptances, analysts say.

On average, retail investors own 374 shares, so will be asked for 410 to prevent dilution of their stake. The bank is offering two new shares for every five already owned.

Thousands of HBOS investors are expected to opt to "tail swallow". This allows them to take up as many rights as possible without spending anything. An investor sells a portion of his or rights to raise cash to take up the rest of the rights, which results in no new outlay but is modestly dilutive.

HBOS said it would offer a free dealing service for private shareholders who wish to sell their rights or to "tail swallow", excluding investors with a share certificate who want to partially sell their rights.

Royal Bank of Scotland, meanwhile, is raising a record 12bn from its rights issue, which closes tomorrow. B&B plans to raise 258 million from its cash call next month.