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HBOS SHARES FALL BELOW RIGHTS PRICE

Shares in Britain’s biggest mortgage bank plummeted 34p

Thursday June 12,2008

By Andrew Johnson, Associate City Editor

HBOS yesterday insisted its £4billion cash call remained on track as its stock fell below the 275p-a-share rights issue price after a 12 per cent plunge.

Shares in Britain’s biggest mortgage bank plummeted 34p to 258p, hit by the bad news from housebuilders and a gloomy trading update from NatWest owner Royal Bank of Scotland.

The shares fell 21p to 212bp, sparking fears HBOS might follow Bradford & Bingley and reprice its rights issue.

If it remains below 275p, 2.1million small shareholders are unlikely to take up their rights, leaving underwriters Morgan Stanley and Dresdner Kleinwort with the stock.

In its second trading statement this month, the bank said trading and its fully-underwritten rights issue were proceeding to plan. It promised a third, “detailed” update next week.

“Current trading and specifically mortgage arrears performance are in line with the group’s expectations,” the bank said yesterday.

A spokesman added: “We are at the beginning of this process. We believe we are raising capital for the right reasons as the UK is facing a difficult economic time.”

It is believed the underwriters remain fully supportive, not least because the company’s value at the rights issue price is well under its book value.

Morgan Stanley and Dresdner are also thought to have made good progress in sub-underwriting the deal and are not in a position to pull out because, unlike B&B, HBOS has not issued a profits warning. However, one investor said the rights issue could still be “touch and go”.

In its update, RBS warned the current gloom could last well into next year, adding it was cautious about prospects.

“There is more bad news than good news,” said chief executive Sir Fred Goodwin. He was confident the group would sell its Direct Line and Churchill insurance businesses.

Analysts said the City had been expecting a slightly cheerier outlook after the success of RBS’s £12billion rights issue.

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