12/06/2008 - 15:00

BankWest's parent faces capital hitch

12/06/2008 - 15:00

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BankWest's parent company HBOS plc and other big British banks are facing uncertainty after a fall in HBOS's share price cast doubt over a massive £4 billion capital raising.

BankWest's parent company HBOS plc and other big British banks are facing uncertainty after a fall in HBOS's share price cast doubt over a massive £4 billion capital raising.

Underwriters to the HBOS rights issue were faced with the prospect of being lumbered with £4 billion of unwanted shares, according to an online report in The Times.

Shares in Royal Bank of Scotland, Barclays and Alliance & Leicester, as well as HBOS, sank to levels not plumbed in at least eight years as London faced the possibility of the biggest equity capital flop since the BP fiasco of 1987, the report said.

The fresh alarm was triggered when HBOS shares dropped below the 275p price at which it plans to issue £4 billion worth of new stock in five weeks, closing at 258p, down 12 per cent.

Unless the share price recovers, the underwriters, Morgan Stanley and Dresdner Kleinwort, and sub-underwriters, will be forced to buy all the shares, leaving them with 29 per cent of the enlarged bank.

As the 275p price level was breached, HBOS issued a statement that the rights issue would go ahead on the present terms and insisted the underwriting agreement was bullet-proof.

Shane O'Riordain, the HBOS communications director, said: "This bank is not for turning. The reasons for the rights issue are as valid now as when we made the original announcement."

Short-selling by hedge funds was blamed for some of the share price slide. The sub-underwriters, fearing a loss, may too have resorted to short-selling as a hedge, analysts said.

HBOS added in a statement yesterday that current trading in general, and mortgage arrears in particular, were in line with its expectations, but declined to comment specifically on its housebuilder exposure.

 

 

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