HBOS follows RBS with rights issue
The Halifax Bank of Scotland group, Britain’s largest mortgage lender, has launched a rights issue last week in order to raise funds from its share holders to maintain liquidity and raise their capital base to help counter the effects of the credit crunch.
HBOS is looking to raise £4bn from its 2.1m share holders. It is offering two new shares for every five owned at a discounted price of 55%. For an average shareholder within the group, owning 375 shares, this will mean paying £412 in order to maintain their stake. If an investor chooses not to take up the offer, they will see their investment being reduced.
Many analysts consider this course of action to be a blow to investors in HBOS who have already seen the share price drop significantly this year and many are advising clients to sell their holdings, given the pessimistic outlook for the coming year within the lending and property markets. Others however, suggest that HBOS is still a sound investment for the long term and investors should sit tight and wait for their share price to bounce back, despite the fact that the value of an individual’s investment has dropped by more than a third during the course of the last six months.
The reason behind of a rights issue is to strengthen a bank’s capital position. This is the level of funding which is required to be held by the bank as a protection measure in the event of a downturn in the market.
The action taken by HBOS, follows a similar move by the Royal Bank of Scotland the previous week, who announced that they intended to raise £12bn from their shareholders through a rights issue and it is likely that many more large high street banks will follow the same course of action over the next few months in order to survive the current turbulent market for mortgages and UK loans.
