HBOS: £3.6 billion Turkey for Morgan, Dresdner?

The last two days of the HBOS rights offering are Monday and Tuesday. Only 10% of the £4 billion offering have been placed, and the price as of Friday was hovering perilously close to the rights offering level. Underwriters Morgan Stanley and Dresdner, and if they have syndicated the deal, other underwriters, will try to sell the remaining £3.6 billion. What they don’t sell, they own. At a minimum, they will tie up their balance sheets; in a downside scenario, they will have to unload shares at a loss.

From the Times:

The high-street bank HBOS will tomorrow admit to one of the most disastrous rights issues in corporate history when it concedes that as few as 10% of its investors took up its £4 billion share offer.

Its two underwriters, Morgan Stanley and Dresdner, will have to place £3.6 billion of shares over the course of Monday or Tuesday.

If they are unable to place the shares at the rights-issue price of 275p or above, they will be forced to take them on to their own balance sheets.

The two investment banks are thought to have sub-under-written about 40% of the issue but it still means they could be left with £1 billion worth of shares each.

Last week as investors were making up their minds whether to subscribe for equity in HBOS, shares in the UK banking sector plunged on fresh concerns over the viability of some of America’s big banks.

Shares in HBOS dropped to 254p, well below the rights-issue price, providing little incentive for institutional investors to take part. It is thought that many retail investors, who account for 25% of the group’s investor base, shunned the issue….

When HBOS originally announced its rights issue two and a half months ago, it was seen as being heavily discounted against a share price that was then standing at 500p….

The revelation of the low take-up could put further pressure on HBOS shares. They closed on Friday at 282p, but the knowledge that a large percentage will have to be sold on the market could see them drift beneath the rights price.

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  1. Henry74

    The irony was the FSA tied to stop hedge funds from shorting companies undertaking rights issues by making them disclose their short positions. The action still failed to save HBOS. One can only surmise that this has a read across to the SEC’s attempt to curb short selling.

  2. Richard Kline

    I can’t think of a single good reason to buy this stuff. I mean, one can glean superior material to stuff in a busted window pane in any alley, so even as, literally, paper it doesn’t cut it. And those ibanks tippling at the Public Window: _This_ is how they are going to return to profitability? These guys, they just _don’t_ generate value added for our economy.

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