Well, shareholders in HBOS, the Bank of England, and maybe just about all of us, need to be grateful for Morgan Stanley and Dresdner.
The bank’s attempt to shore up its balance sheet by raising £4bn has been a disaster. Only 8 per cent or so of shareholders subscribed to the rights issue. It is hardly surprising. Existing shareholders were offered the opportunity to buy two new shares for every five shares they already owned, at a price of 275p. When the rights issue was announced the HBOS share price was around 500p. So it seemed like a good deal at the time.
Morgan Stanley and Dresdner certainly seemed to think it was a good deal, which was why they were willing to underwrite the issue.
But then the share price fell, fell and fell some more, so that today it has been hovering around the rights issue price all day.
The two underwriters are trying to offload the shares – but this creates the danger that a share price crash could be precipitated.
HBOS went to lengths to point out it has raised the money. So we don’t need to worry. Well, maybe we don’t for now. But, presumably, all this will blow a hole in Morgan Stanley and Dresdner’s balance sheets, which they may need to eventually plug via their own fund-raising efforts.
But the big worry must surely relate to what happens if HBOS needs to go out and raise some more. And for that matter, it is leaving all banks who are hoping to raise some readies looking vulnerable.
Comments
Trackbacks