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June 13, 2008    

HBOS rights issue looks uncertain

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by Kay Murchie

The banking industry suffered another blow after it was revealed that the HBOS rights issue looks set to fail.

The UK’s biggest mortgage lender saw its shares fall to 258 pence on Wednesday, less than the 275p price at which investors have been offered shares in the £4 billion rights issue.

As a result of the fall in its share price, HBOS issued a statement maintaining that its planned rights issue, designed to shore up its balance sheet, was fully under-written by Morgan Stanley and Dresdner Kleinwort and proceeding well.

Analysts said the market is now simply waiting for the updated trading statement, which is due next week, in the rights issue document.

The proposed rights issue came after a significant share fall at the hands of short-sellers in the city, who announced false rumours of the bank’s stability before grabbing bargain shares to sell on at a higher cost once share prices recovered.

Experts believe that HBOS is an easy target for short-selling due to its heavy exposure to the UK mortgage market, of which it holds a 20% market share.

HBOS has over 2 million private shareholders, making it the most widely held company in Britain.

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