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Bank rights issues: A right mess of issues

Just weeks after RBS’s shareholders took up 95% of the rights on offer in the UK bank’s £12 billion ($24 billion) rights issue, the largest ever, investors shunned similar cash calls from UK banks HBOS and Barclays.

Fewer than 9% of HBOS’s shareholders took up their rights in the bank’s £4 billion rights issue, priced at a 45% discount to the bank’s share price at the time of launch, and only 18% of Barclays’ existing shareholders took up the shares offered to them in a clawback.

Investors rejected the deals as shares in the banks and indeed the sector suffered roller-coaster dips, plunging them below their offer prices, following bad news on the housing front and disappointing earnings announcements.

Although the rejection from existing shareholders didn’t bother Barclays too much because it had pre-placed the transaction with a few strategic investors, and HBOS received its proceeds, Morgan Stanley and Dresdner Kleinwort, which underwrote the HBOS deal, each appeared to have been left holding shares worth £770 million (5% of the offer) in the UK’s biggest mortgage lender, after a rump placement and after having passed off about 40% of the deal to sub-underwriters.

According to new compulsory filings about short positions with the Financial Services Authority, however, it has emerged that Morgan Stanley’s trading desk went short as much as 2.35% of HBOS after the rights issue closed, an above-the-board move that has been cleared by the FSA.

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