HBOS’s £4bn cash-call is today expected to be shunned by shareholders – making it one of the biggest ever failed rights issues.
Shares in the bank staged a rally yesterday, rising 5 per cent to 268.25p – but despite clawing back some of the ground lost in recent days the stock still closed below the rights issue price of 275p.
HBOS’s two million smaller investors are now expected to reject the rights issue. The shareholders have until today to take up the issue. The rights issue is set to be the biggest flop since the government’s sale of a stake in BP was hit by the 1987 stock market crash.
The rights issue has been fully underwritten – which means HBOS is guaranteed to get its £4bn – but the underwriters Dresdner Kleinwort and Morgan Stanley could be left with 40 per cent of the new shares, worth around £1.6bn. Dresdner and Morgan Stanley have sub-underwritten a significant chunk but the two banks could still be left with paper losses of £300 million, dwarfing their £100 million fee.
The likely failure of the HBOS rights issue is expected to place the bank’s share price under pressure for some time. It is also feared that HBOS’s rights issue flop will mean other firms may also struggle to secure underwriting for similar fund raising plans, as the potential losses deters underwriters.
The underwriters are reported to have been touring London, New York and Europe to off-load the rump of stock and are believed to have found several long-only institutions who are interested in buying the stock.
Barclays’ own £4.5bn capital raising closed at 11am yesterday. The bank is raising £500m from Japan’s Sumitomo Mitsui Banking Corporation and a further £4bn from sovereign wealth funds.
But while the shares have been placed already, existing shareholders are entitled to claw back enough to prevent themselves from being diluted. With Barclays share price rising 23.75p yesterday to 290.5p, above the 282p placing price, analysts are expecting a clawback of around 10 per cent.
Can HBOS recover from the negativity surrounding its £4bn rights issue?
Mark Durling (Brewin Dolphin): “The management underestimated the abundance of negative news flow that was coming through and they thought they could take a negative outlook and say they weren’t going to lend until the securitisation markets open up. Now they will regret having such a negative outlook because it becomes self-fulfilling.”
James Hamilton (Numis): “I don’t think there will be any long term issue for them. That’s what you pay underwriters for. HBOS is a retail bank and the person on the street is not going to care if they got the £4bn from the underwriters or the shareholders.”
Nic Clarke (Charles Stanley): “I don’t think there will be any long term issue for them. That’s what you pay underwriters for. HBOS is a retail bank and the person on the street is not going to care if they got the £4bn from the underwriters or the shareholders.”