Britian's HBOS plans to raise $8B with new stock issue
LONDON—HBOS PLC, the parent of the Bank of Scotland and mortgage lender Halifax, became the latest financial-services firm to seek new capital after losses from the U.S. subprime lending mess, saying Tuesday it plans to ask investors for almost $8 billion by issuing new shares.
The banking group, Britain's sixth-largest bank by market capitalization and the No. 1 mortgage lender, said it expects more challenging economic conditions ahead.
The company said it would book write-downs of 2.84 billion pounds ($5.6 billion) in the current year, up from 227 million pounds ($451 million) in 2007.
HBOS shares fell 1.8 percent to 486.75 pence ($9.67) in London.
Last week, the Royal Bank of Scotland group announced a 12 billion pound ($23.8 billion) rights issue to shore up its capital position.
HBOS said it would offer two new ordinary shares for every five existing ordinary shares at 275 pence ($5.46) per share. It said that would raise 4 billion pounds ($7.95 billion).
Net proceeds from the rights issue would put HBOS comfortably within range to achieve the 6 percent target core Tier 1 capital ratio, a measure of bank capitalization, said Alex Potter, analyst at Collins Stewart.
However, he was unenthusiastic about HBOS stock.
"The risk is that, running into a U.K. recession, this business is relatively exposed to commercial property, buy-to-let and mainstream U.K. mortgages," Potter said.
Richard Hunter, analyst at Hargreaves Lansdown Stockbrokers the positive side of the move comes "in the form of 'kitchen sinking' the sub-prime writedowns, whilst allowing less of a reliance on the U.K. mortgage business as the bank looks to diversify internationally."
"In addition, the capital ratio will also be strengthened to more of a European peer level," Hunter said.
"Less positively, and similar to RBS, the dividend will be reduced and the clock will be ticking for the management to prove that they will make prudent use of the additional funds," Hunter said.
Group Chief Executive Andy Hornby said the group aimed to achieve a return on equity in the mid-teens.
"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," said Hornby.
"In the long term we remain optimistic about the fundamental prospects for our core businesses. The group will be well positioned to benefit over time from a number of selective growth opportunities across our businesses where there will be scope to earn good returns."
Analysts have speculated that Barclays PLC, Britain's No. 3 banking group by market capitalization, would be the next to go to its shareholders for a cash injection.
The bank said last week that it will report lower first-quarter earnings compared with the same period a year earlier, after a particularly tough time in March.
Barclays has written off 1.6 billion pounds ($3.18 billion) in losses because of the subprime lending crisis in the United States, and has not ruled out further writedowns. However, Group Chief Executive John Varley offered no clues in last week's trading update about whether the company would go for a rights issue.
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On the Net: http://www.hbosplc.com
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