The Banks Want Your Cash

By Padraig O'Hannelly | 19 July 2008

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Noon on Friday was the deadline for HBOS (LSE: HBOS) shareholders to take up their rights to buy £4bn worth of new shares. So how are the fund-raising efforts of the various banks progressing?

RBS (LSE: RBS) was first out of the blocks to look for an additional £12bn of funding, and they made the right decision to get it out of the way quickly. 95% of the rights were taken up at 200p in early June, and the share price subsequently fell to a near ten-year low of 150p on Wednesday. They have since rebounded to 196p.

The debacle at buy-to-let lender Bradford & Bingley (LSE: BB) is inching further forward, as its ill-fated £400m rights issue was approved by shareholders on Thursday. The initial rights issue at 82p was revised down to 55p when the market price of the shares fell below the rights price, and the company let the underwriters out of their commitments to take up the shares at the higher price.

Since then, the company has rejected a counter offer by entrepreneur Clive Cowdery. The price has hovered below the rights price in recent days, and there's a considerable risk that the underwriters, and their sub-underwriters (mainly other British banks), will have to take up a large number of unsold shares.

Today's deadline for HBOS shareholders could also see the underwriters being saddled with stock. The shares were trading around 279p at noon, versus a rights price of 275p, but this will have come too late for many, as the shares have suffered early this week along with the rest of the banks.

Although not technically a rights issue, the £4bn fund-raising by Barclays (LSE: BARC) is similar in many ways, and is effectively under-written by the Qatar Investment Authority. Barclays have managed to avoid the long drawn-out process that has dogged the other banks.

A different way of solving the cash problem is to be bought out by a larger stronger bank. This is what Alliance & Leicester (LSE: AL) announced this week, selling out to the Spanish bank Santander, which already owns Abbey.

The fate of Lloyds TSB (LSE: LLOY) is the subject of much speculation. If additional funding is required, the most straightforward route may be a buy-out similar to Alliance & Leicester's.

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