HBOS shares still below offer price

HBOS announces profits slump

Halifax Bank of Scotland's £4 billion investor cash-call looked doomed to be one of the biggest failed rights issues ever, despite shares rallying as banks soared higher.

HBOS saw its shares rise 5% amid a rebound in the banking sector after suffering hefty falls earlier this week, with rivals Royal Bank of Scotland and Barclays also up, by 10% and 8% respectively.

But for HBOS, the rise was not enough to take its shares above the 275p price being offered to investors.

And with only one day to go until the deadline, take-up among its two million smaller investors is expected to be woefully low. It will be the biggest flop since the government's sale of a stake in BP was hit by the 1987 stock market crash.

While HBOS is guaranteed to get the £4 million regardless of investor take-up, its rights issue underwriters are now thought to be facing a sizeable overhang of shares to offload.

Speculation suggests that they may be left with 40% or possibly more of the new shares, despite reportedly having successfully sub-underwritten a significant chunk with existing shareholders and new institutional shareholders.

The two lead underwriters, Dresdner Kleinwort and Morgan Stanley, could potentially be left with paper losses of £300 million - far higher than their £100 million fee.

Justin Urquhart Stewart of Seven Investment Management said: "HBOS will get their money whatever, because it has been underwritten, but there'll be a lot of blood on the carpet.

"They could be left with just about all of the shares - some people will have taken it up, but who would want to buy shares at a premium in the rights issue when they can get them cheaper on the open market?"

It is now feared that the failure to shift the HBOS rights issue stock may put the bank's share price under pressure for some time. Other firms may also now struggle to secure underwriting for similar fund raising plans, with the potential for hefty losses a deterrent for many underwriters.