Page last updated at 18:13 GMT, Monday, 23 June 2008 19:13 UK

HBOS share price dealt new blow

Halifax sign outside a branch of the bank

A 4bn call for cash by HBOS has come under more pressure after the banking giant's shares again dropped beneath the rights issue asking price.

Existing shareholders can buy at a "discount" price of 275p per share - but they fell 4.3% to 270.5p.

The drop came after a US hedge fund revealed that it had "shorted" the firm's shares - essentially betting that they would fall in value.

Under new rules investors in this position must declare their interest.

Analysts said that the share price had also been dented as a result of investment bank UBS predicting that HBOS would see mortgage arrears continue to rise into the second half of next year.

This increased the threat that a large number of the shares would not be taken up during rights issue, they added.

HBOS shares had dipped under the rights issue offer price earlier this month - falling as low as 258p before rallying.

'Going ahead'

The UK's financial watchdog, the Financial Services Authority, introduced the disclosure rule after the stock trading technique was blamed for a previous HBOS share price slump.

Short-selling occurs when an investor borrows company stock owned by another investor, then sells the shares in the market, hoping the price will fall.

WHAT IS A RIGHTS ISSUE?
Companies issue extra shares to raise money
They are offered to existing shareholders, usually at a discount to the current share price
Shares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones

They then buy the shares back at a lower price, pocketing the difference.

Under disclosure rules, US-based Harbert Management Corporation said that it had shorted 3.3% of HBOS shares - worth around 340m.

Meanwhile Meditor Capital Management has also shorted a 0.3% stake in the bank.

Last week HBOS said that write-downs linked to the credit crunch had risen by 58m to 1.03bn since the end of March.

And in an interview with the Reuters news agency, chief executive Andy Hornby said it would go ahead even if shares fell back below issue price.

"We're underwritten and this rights issue is going ahead. It's as simple as that. We are not for turning," he said.

Earlier this month, the Royal Bank of Scotland announced a strong take-up for its 12bn rights issue.

Print Sponsor



FEATURES, VIEWS, ANALYSIS
Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit

BBC navigation

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.

Americas Africa Europe Middle East South Asia Asia Pacific