UPDATE 1-HBOS share rally comes too late for rights issue

(Writes through with afternoon rally, details)

LONDON, July 18 (Reuters) - A rally in HBOS HBOS.L shares came too late on Friday to encourage investors to take up the UK lender's planned 4 billion pound ($8 billion) cash call, but could prove a boon to underwriters left to place unwanted stock.

Shares in Britain’s largest mortgage lender were trading at 269p at 1000 GMT as the deadline for subscriptions expired, below the 275p rights issue price, leaving investors still more likely to buy in the market than to snap up the new shares.

However, a jump in European banking stocks less than an hour later -- following a smaller than expected loss from U.S. banking giant Citigroup C.N -- took HBOS shares as high as 287p in afternoon trade -- its highest level in three weeks.

“In my view, most people will have made a decision two or three days ago, when HBOS shares were 30p or 40p below the rights price. I can’t see many having taken up the rights,” said fund manager Colin Morton at Rensburg Fund Management.

“The underwriters, though, will be very relieved. At one point, it looked like they would be 40p underwater... It’s been an incredible 48 hours for bank stocks.”

HBOS said in April it was raising 4 billion pounds in a discounted issue to shore up its balance sheet and help it weather conditions in a fast-deteriorating UK property market. Since then, however, its shares have almost halved, hit by increased concerns over the UK economy and a raft of rights issues in the sector, including Royal Bank of Scotland's RBS.L 12 billion pound cash call -- the biggest ever.

Analysts expect shareholders to take up around a quarter to a third of the new stock in issue, leaving HBOS's two underwriting banks, Morgan Stanley MS.N and Dresdner ALVG.DE, with as much as three-quarters of the shares.

The two banks are then expected to place roughly half that rump with sub-underwriters. Analysts also expect them to hedge their remaining exposure with positions elsewhere in the UK banking sector -- but depending on the movement of volatile markets, they could still end up as major shareholders.

“If the price isn’t above 275p by 11 o’clock you can expect the underwriters to be left with about 40 percent of the rights issue, that’s a substantial overhang,” one banking analyst said earlier on Friday.

HBOS is expected to detail the take-up of its rights issue on Monday. (Reporting by Steve Slater and Clara Ferreira-Marques; editing by Tony Austin)


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at and follow us on Twitter @Breakingviews and at All opinions expressed are those of the authors.