HBoS rights issue: a £4bn flop

published 25 July 2008

HBoS's £4bn rights issue has been "the quintessence of a flop", said Robert Peston on bbc.co.uk. The bank got its money, but only around 8% of the new shares were taken up by the biggest British mortgage lender's shareholders, leaving the underwriters trying to sell around £3.8bn of shares. No wonder. The shares plummeted below the subscription price last week as jitters over the US banking system added to concern about the banking outlook here. The key question surrounding HBoS is now whether the £4bn it has just raised is enough, said Jeremy Warner in The Independent.

The bigger question is whether British banks can raise enough to allow lending growth to expand at a healthy clip and thus promote solid economic growth, said Vicky Redwood in Capital Economics; in the five years to mid-2007, annual lending growth averaged 13%. Unfortunately, it's unlikely, said Redwood. Banks have written down £27bn so far and now face around £8bn of UK property writedowns. To beef up their capital bases they can either raise money or stop new lending.

All in all, around £65bn is needed to offset the credit crunch and keep lending at high recent rates. So far £20bn has been raised, mostly from rights issues, and "shareholder fatigue" is already kicking in. "It looks doubtful whether they can even raise enough to allow them to increase their lending at all." The impact on the economy "could be devastating".