HBOS rights issue flops amid banking woes

LONDON, England (AP) -- HBOS said Monday that only about 8 percent of its shareholders opted to buy into its £4 billion ($8 billion) rights issue.

The British bank said its underwriters -- Morgan Stanley and Dresdner -- would now have to find subscribers for the balance of its shares, worth about £3.78 billion pounds ($7.55 billion) by Tuesday afternoon or add them to their own balance sheets.

The weak takeup comes amid continuing economic uncertainty in Britain and turmoil in the U.S. banking sector.

Sliding share prices have also made HBOS's discounted offer increasingly unattractive.

The bank offered its investors a hefty discount of 275 pence ($5.50) a share in April, when the value of its stock neared 500 pence ($10) a share. But the company's value has been eroded by the bad economic news, at one point even falling below the discounted price.

HBOS spokesman Shane O'Riordain said the rights issue took place "in the middle of a fierce financial storm."

"We have seen unprecedented volatility in banking stocks," O'Riordain said. "The bottom line is that we have raised £4 billion of capital. Just like ships need more ballast in heavy seas, banks need more capital in tougher times. We have now raised that capital."

Like other leading British banks, HBOS tried to tap its shareholders for extra cash in an effort to offset losses linked to the collapse of the U.S. subprime mortgage market and the ensuing squeeze on global credit.

The Royal Bank of Scotland recently raised £12 billion ($24 billion) in Europe's biggest-ever rights issue, while Barclays said last month it hoped to raise £4.5 billion ($9 billion).

HBOS shares opened more than 4 percent down at 270 pence ($5.40) a share.

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