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HBOS rights issue: Nailing the blame game

HBOS is struggling. That’s why its stock price is depressed and its rights issue came close to disaster.

Financial institutions: HBOS detractors jump the gun

Bank rights issues: A right mess of issues

Even summer sale prices with almost 50% reductions turned out to be not quite generous enough to entice investors to take up their rights in HBOS’s dismal issue. The mortgage lender’s share price fell beyond the 45% discount announced at the start of the deal’s subscription period in April as share prices across the sector tumbled on a stream of bad news.

HBOS received the £4 billion ($8 billion) in cash that it needed to raise, thanks to hard underwriting commitments, but the low take-up means that the deal did not succeed in raising confidence – in itself hardly helped by a 58% drop in profits for the first half of 2008.

The failure of the HBOS deal, and the difficulties facing other British banks seeking to raise capital, have focused attention on to the role of shorting during rights issues.

The Association of British Insurers, whose members own more than 20% of the UK stock market, is the latest to offer its two cents-worth, by calling for investment banks to restrict short selling during rights issues and make sure that sub-underwriting is only passed on to investors with a genuine long-term interest and not to those who might offset their risks through short selling.

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