Strategy & Operations

It’s the biggest cash call in European corporate history, with those owning 95.11% of the shares agreeing to take up rights, buying 5.8bn new shares valued at 200p each. The result is a vital injection of cash to the bank’s finances, which took a massive battering in the wake of the credit crunch.

The bank was today reported to be one of country’s top wealth generating companies, but like most of the banking sector it has had a rough time of it in the wake of the sub-prime crisis. Shares in the bank have more than halved, including a 25% slump since the rights issue was announced in April.

Its apparent success will be greeted with widespread relief. First among the underwriters – Merrill Lynch, Goldman and UBS – who are left with a rump of just under 5% of the shares, worth around £600m. There had been fears that the company’s shares would collapse if the underwriters were left with a large chunk of stock they couldn’t shift.

Then there’s the rest of the banking sector, which have its eyes on the impact of several similar moves. HBOS and Bradford & Bingley have both called on their investors for a financial foot-up. Last week Bradford & Bingley had to re-price its own £300m cash call, which looked set to fail after a slump in the bank’s shares. And HBOS, the lender most exposed to Britain's crumbling mortgage market, is about to launch its own £4bn rights issue.

These are rarely a popular move. In a sense it's like having a part share in a race horse, owning the front leg, and having someone come along telling you to pay an extra £50k or else wind up owning the hoof. Shareholders are generally resistant because it means that their investments are diluted, the firms’ earnings are spread thinly and each share takes a smaller slice of the company’s earnings. In other words, not the sort of thing you’d normally look to instigate. But for the financial sector these are, of course, not normal times.