HBOS announces £4 billion rights issue

29 April 2008 / by Rebecca Sargent
As expected, HBOS has today announced a rights issue to raise £4 billion in attempts to strengthen its balance sheet.

Rumours of the impending action began yesterday and a statement released today has confirmed the banks call for cash from shareholders. The announcement from HBOS comes hot on the heels of RBS' record breaking £12 billion plea to shareholders last week.

According to the statement from HBOS, which owns Halifax and Bank of Scotland, the rights issue has been announced to strengthen the banks capital base as a result of current market conditions.

The credit crunch is hitting home, literally, as mortgage rates rise and 10 per cent deposits become common place. Halifax is the UK's largest mortgage lender and, as house prices rise, fewer mortgages are being approved.

The rights issue from HBOS will be fully underwritten and will offer two new ordinary shares for every five existing ordinary shares, at a discounted rate of 275 pence share, a saving of 45 per cent of the closing share price yesterday.

Prior to this announcement, HBOS' write-downs had remained in the millions, but the Group is expected to write off as much as £2.8 billion as a result of its involvement in the US sub-prime mortgage market and the global credit crisis.

HBOS argued that the rights issue will allow it to retain its strong position amongst leading banks, despite its increased write-downs. Defending the Group's actions, chief executive Andy Hornby, said: "The actions we have announced today achieve a step change in our capital strength and our target ratios. This allows us to consolidate our competitive position in our core markets.

"We are planning for a more challenging environment ahead and the proceeds of the rights issue should ensure that we benefit from strong ratios even if the macroeconomic environment deteriorates further."

Commenting on the HBOS's strength in the market, Mr Hornby continued: "The Group will be well positioned to benefit over time from a number of selective growth opportunities across our business where there will be scope to earn good returns.

"We are focused on achieving returns on equity in the mid teens and are well placed to deliver long term sustainable growth." He concluded.

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