HBOS will now get the money it needs from its underwriters
Investors in UK bank HBOS have overwhelmingly declined the chance to buy new shares in the firm.
The top mortgage lender announced that just 8.29% of the new shares offered in its £4bn rights issue were taken up.
HBOS shares were available on the stock market for less than the 275 pence issue price last week, making it unattractive to shareholders.
But HBOS will still get the £4bn it wanted, as the unsold new shares will be bought by the issue's underwriters.
The underwriters Morgan Stanley and Dresdner succeeded in placing almost 30% more of the new stock on Monday at 275 pence per share after putting the so-called "rump" of unsold shares on the market.
They have two days to find buyers willing to pay at least 275p a share before they have to buy the shares.
The underwriters currently hold 62% of the shares created by the rights issue.
HBOS shares fell more than 6% on Monday to 264.5 pence on concerns about the number of willing buyers for the lender's shares at that price.
"The market knows that the underwriters would want to sell their stock at the earliest opportunity, which would keep HBOS's shares under downward pressure at a time when the weak housing market is doing quite enough to depress its shares," the BBC's business editor Robert Peston said.
"The deal will probably enter the City lexicon as the phrase 'doing an HBOS', to mean how not to raise money - though that would be unfair, because HBOS is the victim of a rights-issue system that is cumbersome and slow," he added.
When HBOS launched its rights issue in April, its shares cost about 500p.
Shareholders were offered two new shares at the then heavily-discounted price of 275p for every five shares they already owned.
'Fierce financial storm'
Since then, housing market concerns and fears about further write-downs in the banking sector have weighed heavily on shares.
"The rights issue was conducted in the middle of a fierce financial storm," an HBOS spokesman said.
"We saw unprecedented volatility in bank stocks."
But the bank stressed that it had still managed to raise £4bn.
Explaining the poor shareholder take-up, analysts said many investors were wary of buying HBOS shares given the current uncertain outlook for the housing market.
"It is investors taking a view on the UK property market, which is a decision for the steeliest investors given where we are," said Richard Hunter, from Hargreaves Lansdown.
HBOS is one of a host of leading British banks to tap their shareholders for extra cash to strengthen their balance sheets as the fallout from the credit crunch continues.
The Royal Bank of Scotland has raised £12bn while Barclays has secured £4.5bn in new funding from a range of foreign investors.
Barclays announced last week that 19% of its new shares had been taken up by existing investors.