HBOS rights issue flops
Shareholders in HBOS have snubbed the banking giant’s offer of buying new shares in the firm.
HBOS, the UK’s largest mortgage lender, has confirmed that just 8.29% of the new shares offered in its £4 billion rights issue have been taken up.
However, despite the poor response, the rights issue will still go ahead with the unsold shares bought by the firm’s underwriters, Morgan Stanley and Dresdner Kleinwort. These investment banks will now try and sell the shares at a profit, but, if they fail, will have to accept the stock themselves.
The lack of interest among shareholders is a reflection of HBOS’s suffering share price. When the rights issue was launched in April, its share price was around the 500p mark, making the rights issue price tag of 275p look attractive. However, this has since faltered as fears abound about the likelihood of a recession and further write-downs.
Shares in HBOS closed at 282p on Friday 18 July, and opened this morning (21 July) at 270p.
Around 25% of HBOS shares are owned by smaller investors, the majority of whom were original customers of the Halifax Building Society, which demutalised back in 1997. It is believed that the vast majority of these shareholders will have rejected the bank’s cash-call.
Last week, Bradford & Bingley shareholders backed its £400 million cash call with 93% of shareholders voting for the rights issue to go
A way a company can raise capital by creating new shares and invite existing shareholders in the company to buy these additional shares in proportion to their existing holding to avoid a dilution of value, which means keeping a proportionate ownership in the expanded company, so that (for example) a 10% stake before the rights issue remains a 10% stake after it. As an added incentive, the new shares are usually offered below the market price of the existing shares, which are normally a tradeable security (a type of short-dated warrant) and this allows shareholders who do not wish to purchase new shares to sell the rights to someone who does.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.