HBOS has finally completed its long-awaited rights issue – and it’s been a bit of a flop. Shareholders had been offered the chance to buy two shares for every five that they already owned, at the heavily-discounted price of 275p (well, it looked like a heavy discount at the time). Three months on, the red-faced bank has been forced to admit that a measly 8.3% of shareholders have taken up the offer, making it one of the least successful cash calls in British corporate history. Not exactly a massive kind of vote of confidence in CEO Andy Hornby and his management team, is it?
The low take-up wasn’t exactly a complete surprise – since the £4bn rights issue was announced in April, the HBOS share price has sunk like a stone. Not all of this was the beleaguered bank’s fault: it’s also been blighted by a constant stream of bad news about the housing market and more recently, the travails of US mortgage companies Freddie Mac and Fannie Mae. Back in April, HBOS shares were worth about 500p; last week they sank as low as 225p (they were back above the offer price by Friday, but it was clearly too late to make any difference). This might be a good argument for making rights issues a less drawn-out process, but it’s still a pretty alarming slide. If you're worried about a 6% drop in your property price, just be grateful you didn't have all your money in HBOS shares...
The only positive for HBOS is that at least it will get its £4bn, since underwriters Morgan Stanley and Dresdner Kleinwort are duty bound to cough up the difference – equivalent to about £3.6bn of shares, thanks to the low take-up. Admittedly the two banks minimised some of their losses by hedging their exposure and lining up some institutions to take about 40% of this amount off their hands - but they’re still going to be left sitting on a huge pile of HBOS stock that they don’t really want. Unfortunately for HBOS, they’ll now need to sell these shares on the market in the coming days, which is bound to push the share price even lower.
Part of the problem for HBOS was that it came to the party too late – the earlier rights issues at RBS and Barclays hoovered up a lot of investor cash (although with an investor take-up of 19% last week, Barclays didn’t do a whole lot better). But it’s still a major embarrassment for Hornby – the youthful HBOS CEO has been the rising star of the banking world for years, but the events of the last 12 months have done his reputation no good at all. Still, at least if the worst comes to the worst, he’s not too long in the tooth to start again...
In today's bulletin:
Investors give HBOS the cold shoulder
Government faces uphill task with welfare shake-up
Domino's takes even bigger slice of the action
Bratz boffin busted by Barbie
Helping the UK fire on all cylinders