HBOS to raise £4bn through rights issue

HBOS, Britain’s biggest lender, has asked shareholders to raise £4bn as it looks to remain competitive during the ongoing credit crunch and volatility in the housing market.

The owner of The Halifax and Bank of Scotland said “the backdrop of both the continuing financial market volatility and the more challenging UK macroeconomic environment” had forced its hand.

HBOS follows The Royal Bank of Scotland in the move to raise cash through shareholders. RBS launched a £12bn rights issue last week.

Andy Hornby, HBOS’s group chief executive, said: “The actions we have announced today achieve a step change in our capital strength and our target ratios. This allows us to consolidate our competitive position in our core markets.

“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. 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.

“We are focused on achieving returns on equity in the mid teens and are well placed to deliver long term sustainable growth.”

HBOS hopes the rights issue, which is also set to be announced at the group’s annual shareholder meeting in Glasgow today, will allow it to take advantage of oppoerunities for selective growth.

These growth areas include it remaining as the biggest mortgage lender, continuing to grow its insurance and investment sectors and investing in targeted international growth.

The underwritten rights issue will allow shareholders to purchase up to two extra shares for every five they currently hold at a price of 275p per share.

In February the group announced a writedown of £227m but today HBOS said for the year to date it had taken a £970m hit through its profit and loss account.

A further £1.87bn will not impact on reported profits.
 
HBOS also said that its trading performance so far this year had been “satisfactory”.

The bank has the broadest investor base in Britain with more than two million shareholders.

HBOS will ask shareholders to approve the rights issue at an extraordinary general meeting in June.