Shares in some of the UK’s leading banks have risen strongly on the back of takeover rumours and hopes of a recovery in the financial sector.

HBOS, the UK’s biggest mortgage lender, jumped 16.9% on talk that it could be a takeover target for Spanish bank BBVA.

Both HBOS and BBVA declined to comment on the rumours.

Among other UK banks, shares in Royal Bank of Scotland were up 11.2%, Barclays added 11.8% and Lloyds TSB shares were trading 8.3% higher.

Raising funds

On Monday, HBOS had revealed that its £4bn fund-raising rights issue had been snubbed by investors.

Initially only 8.3% of the new shares offered were taken up, although a further 30% were taken up on Monday, leaving the rest with the issue’s underwriters.

HBOS is not the only UK bank to have sought extra funds to strengthen its balance sheet as the fallout from the credit crunch continues.

The Royal Bank of Scotland has raised £12bn while Barclays has secured £4.5bn in new funding from a range of foreign investors.

Spain’s BBVA is currently focused on the Spanish and Latin American markets. It employs 95,000 employees, has 35 million customers and operates in 32 countries.

Last week, Spanish rival Santander agreed to buy UK bank Alliance & Leicester for £1.2bn.

News reported by The BBC

Morgan Stanley’s decision to take a short position in HBOS, whose £4bn rights issue it had underwritten, was cleared by City regulators yesterday.

The Financial Services Authority is satisfied that the decision to take the short position was made by the investment bank’s trading desk entirely separately from the underwriting department, which had inside information about the performance of the issue. Morgan Stanley is said to have kept the watchdog informed of its intentions throughout the process.

The investment bank surprised the market on Monday by declaring a 2.35 per cent short position in HBOS taken out on Friday, the day the rights issue closed.

HBOS’s shares had traded below the 275p rights price all morning but they jumped soon after the offer closed at 11am as short sellers started covering their positions. Better-than-expected results from Citigroup in the US added to demand for the shares as long investors sought exposure to the banking sector. The shares continued to rise, closing up 5 per cent at 282p.

Morgan Stanley’s trading desk decided to sell shares it did not own to satisfy the demand, which might have evaporated by Monday if there had been bad news on the financial sector. The bank’s trading desk also knew that Morgan Stanley was going to be on the hook for a large chunk of the £2.6bn of unsold HBOS stock.

The episode would not have come to light if the FSA had not introduced new rules forcing holders of short positions of more than 0.25 per cent in companies conducting rights issues to disclose their bets.

It was widely believed in the market that the issue had received a low take-up because HBOS shares had traded below the rights price in the crucial few days before the closing date. Barclays had revealed earlier on Friday that its offer of £4bn to existing shareholders had received a take-up of only 19 per cent.

The bank had not shorted HBOS’s shares at any time during the rights issue process, despite being allowed to do so, though it shorted other banks as proxies to hedge its exposure.

Dresdner Kleinwort, the other underwriter of HBOS’s rights issue, has not declared a short position in the bank

HBOS shares fell 1.3 per cent yesterday, in line with the sector, to close at 261p.

>News reported by The Independent

Investors in UK bank HBOS have overwhelmingly declined the chance to buy new shares in the firm.

The top mortgage lender announced that just 8.29% of the new shares offered in its £4bn rights issue were taken up.

HBOS shares were available on the stock market for less than the 275 pence issue price last week, making it unattractive to shareholders.

But HBOS will still get the £4bn it wanted, as the unsold new shares will be bought by the issue’s underwriters.

The underwriters Morgan Stanley and Dresdner succeeded in placing almost 30% more of the new stock on Monday at 275 pence per share after putting the so-called “rump” of unsold shares on the market.

They have two days to find buyers willing to pay at least 275p a share before they have to buy the shares.

The underwriters currently hold 62% of the shares created by the rights issue.

“The deal will probably enter the City lexicon as the phrase “doing an HBOS”, to mean how not to raise money.” Robert Peston, BBC Business editor

HBOS shares fell more than 6% on Monday to 264.5 pence on concerns about the number of willing buyers for the lender’s shares at that price.

“The market knows that the underwriters would want to sell their stock at the earliest opportunity, which would keep HBOS’s shares under downward pressure at a time when the weak housing market is doing quite enough to depress its shares,” the BBC’s business editor Robert Peston said.

“The deal will probably enter the City lexicon as the phrase ‘doing an HBOS’, to mean how not to raise money – though that would be unfair, because HBOS is the victim of a rights-issue system that is cumbersome and slow,” he added.

When HBOS launched its rights issue in April, its shares cost about 500p.

Shareholders were offered two new shares at the then heavily-discounted price of 275p for every five shares they already owned.

‘Fierce financial storm’

Since then, housing market concerns and fears about further write-downs in the banking sector have weighed heavily on shares.

“We saw unprecedented volatility in bank stocks” HBOS spokesman

“The rights issue was conducted in the middle of a fierce financial storm,” an HBOS spokesman said.

“We saw unprecedented volatility in bank stocks.”

But the bank stressed that it had still managed to raise £4bn.

Explaining the poor shareholder take-up, analysts said many investors were wary of buying HBOS shares given the current uncertain outlook for the housing market.

“It is investors taking a view on the UK property market, which is a decision for the steeliest investors given where we are,” said Richard Hunter, from Hargreaves Lansdown.

HBOS is one of a host of leading British banks to tap their shareholders for extra cash to strengthen their balance sheets as the fallout from the credit crunch continues.

The Royal Bank of Scotland has raised £12bn while Barclays has secured £4.5bn in new funding from a range of foreign investors.

Barclays announced last week that 19% of its new shares had been taken up by existing investors.

News reported by The BBC

Investors based in Qatar own 8% of Barclays after the bank’s existing shareholders shunned its £4.5bn fundraising.

The Qataris were sitting last night on a £200m profit after bank shares staged a sudden rally after a week in which shares were battered by fears over the state of the US banking sector.

However, the rally came too late to help HBOS, which completed its £4bn rights issue yesterday. The bank will reveal on Monday how many of its shareholders supported its cash call at 275p a share. The City is braced for a low uptake, suggesting that the investment banks Morgan Stanley and Dresdner Kleinwort and the sub-underwriters they lined up could be left holding many of the £4bn of new shares.

Just 19% of Barclays’ shareholders participated in its fundraising. In contrast, the record-breaking £12bn rights issue by Royal Bank of Scotland was supported by 97% of its existing shareholders. HBOS is not expected to achieve anything near this level of success, particularly as 25% of its investor base are retail investors who traditionally sit on the sidelines during fundraising exercises.

Barclays avoided a rights issue. Instead it embarked upon a £4bn share-placing backed by four major investment houses – the Qatar Investment Authority and the Qatar-based fund Challenger, China Development Bank and Singapore’s sovereign wealth fund Temasek – and a £500m investment by the Japanese bank Sumitomo Mitsui.

Barclays’ existing shareholders were allowed to “claw back” stakes from the four investment houses but had little incentive to do so because its shares often traded below the 282p at which the placing was priced.

However, by the close last night, Barclays shares were up 10% at 320.25p and HBOS closed above its rights issue price of 275p at 282p, up 5%. At the 11am deadline for acceptances for the rights issue, HBOS shares were at 269p, below the subscription price.

Bank shares were buoyed yesterday by better than expected figures from the US bank Citigroup after a turbulent week following the bailout of the US mortgage lenders Freddie Mac and Fannie Mae. RBS, which sank to a new low of 145p this week, also jumped 10% to 197.6p – within a whisker of the 200p at which its investors were convinced to support its cash call.

Sentiment was also boosted by research from analysts at Morgan Stanley who regard 145p as the “bottom”. James Eden, banks analyst at Exane BNP Paribas, also called the bottom for RBS. “We see downside risk for every single bank apart from RBS,” said Eden.

He also admitted he was embarking upon a more pessimistic way to value banks by using the basis of a 1990s-style recession and then giving this scenario a 40% probability. To explain his change in methodology, he said: “As this author sits here today, watching his house plunge in value while the cost of his weekly food shop soars, booking advance supersaver train tickets to visit his grandparents in Cambridge because petrol is too expensive to travel by car, and with a greater sense of job insecurity than he would like, we are forced to admit that our base-case scenario is probably also our best case”.

Barclays shareholder register will undergo a radical change as a result of its fundraising. The QIA is expected to announce next week that it has a 6% share in the bank, while Challenger is expected to have a near-2% investment, taking the total Qatari investor base to 8%. The China Development Bank is maintaining its stake at 3%, while Temasek is raising its stake from 2% to about 3%. Sumitomo Mitsui will own 2.1%, while a variety of hedge funds such as Och-Ziff, Lansdowne and GLG will also be taking up Barclays shares.

News reported by The Guardian

Halifax Bank of Scotland (HBOS), the UK’s top mortgage lender, will reveal on Monday how many investors have opted to buy new shares in the business.

Media reports have suggested that shareholder support for the bank’s £4bn rights issue will be lukewarm amid concerns about its falling share price.

HBOS shares have been trading below the 275 pence per share offer price, making it unattractive for many investors.

But HBOS will still get the money as the issue is underwritten by top banks.

Share slump

This means that the underwriters – Morgan Stanley and Dresdner Bank – will end up owning a large chunk of the new shares until they can sell them on to other City institutions.

HBOS is one of the host of leading British banks to tap their shareholders for extra cash to strengthen their balance sheets as the fallout from the credit crunch continues.

The Royal Bank of Scotland has raised £12bn while Barclays has secured £4.5bn in new funding from a range of foreign investors.

But the HBOS cash call has come under particular focus because of the sharp fall in its share price in recent months.

When the bank launched its rights issue in April, HBOS shares were worth about 500p.

But its shares have fallen by more than 40% in recent weeks, making it cheaper for investors to buy existing shares in the market rather than take-up the new ones on offer.

HBOS shares rallied on Friday, closing up 5% at 282p, but could come under fresh pressure when the outcome of the rights issue is known.

The Sunday Times reported that as few as 10% of HBOS investors had subscribed for new shares by the time the offer officially closed on Friday morning.

It said most of the bank’s two million small investors had sidestepped the offer.

The gloomy outlook for the UK housing market and the economy in general has eroded investor confidence in leading banks.

But it has been claimed that HBOS has been particularly hit by the practice of “short-selling” where investors sell shares, thus forcing them down, only to buy them later for a big profit.

News reported by The BBC

Supporters of HBOS’s £4bn rights issue were hoping last night that yesterday’s surge in banking stocks could boost last-minute demand for the bank’s capital raising.

Shares of Britain’s biggest mortgage-lender rose 5.4 per cent to 268.25p but were still adrift of the 275p offer price for the rights, meaning that investors should be able to buy the stock cheaper in the market. Shareholders have until 11am today to take up their rights to the new shares.

But with the shares trading closer to the rights price, big investors that need to buy large chunks of HBOS stock to maintain their holdings might choose to buy the shares.

Observers said the closing of the gap with the offer price could give long-term investors who want to support the capital raising enough justification for taking up the rights.

Even if there is a late surge, Morgan Stanley and Dresdner Kleinwort, the underwriters of HBOS’s cash call, will be left with large holdings of the bank’s shares.

A “substantial” proportion of the share offer, designed to boost the bank’s capital strength as the economy slows, is said to be sub-underwritten by long-term existing investors that are likely to hold on to the stock. The banks’ underwriting guarantees that HBOS will get the money.

The FTSE 350 banks index rose 6.5 per cent after strong banking results in the US helped to lift the gloom that had driven shares of UK lenders to a new 10-year low during trading on Thursday. Bradford & Bingley’s £400m rights issue was approved by shareholders yesterday, with 93 per cent of votes cast in favour of the share sale and only 3 per cent voting against. The buy-to-let lender’s shares rose 7.5 per cent to close 1p below the 55p rights price.

Barclays has shunned the rights issue route by lining up “anchor” investors led by the Qatar Investment Authority to buy £4.5bn of new shares if existing shareholders fail to purchase them at 282p.

Barclays shares surged 8.9 per cent to 290.5p but the rise was too late for yesterday’s 11am deadline for taking up the shares.

Royal Bank of Scotland raised £12bn in its rights issue, which closed early last month when the gloom about the financial sector had lifted temporarily. The bank’s shares jumped 8.9 per cent to 179.5p yesterday but were 10 per cent the 200p rights price.

The fraught progress of B&B and HBOS’s rights issues will deter banks from using that route to raise capital in the near future. A number of bank analysts believe that UK lenders may need to raise fresh funds as the economic slowdown boosts bad debts.

UBS analysts said yesterday that Lloyds TSB, which has not joined the search for new funds, could find its capital under pressure. The analysts predicted a 30 per cent cut in Lloyds’ dividend next year because the bank will want to avoid a rights issue and has little in the way of non-core assets to sell.

Lloyds’ shares shrugged off the analysts’ concerns, rising 5.8 per cent.

News reported by The Independent

Top City practitioners and regulators have been summoned to the Treasury tomorrow to discuss reforming the rights issue process, in the wake of the chaos surrounding the recent cash calls undertaken by the UK’s troubled banks.

The Treasury is determined to push for changes to the process, which became more controversial following the crisis cash calls launched by HBOS, RBS and Bradford & Bingley to shore up their balance sheets. If agreement can be reached with practitioners over the next few weeks, the Treasury hopes to put recommendations in place by the end of the summer.

One source said: “The Treasury is genuinely shocked by the disastrous way the recent rights issues by the banks were undertaken. It’s bad for the companies in trouble but also bad for London as a financial centre. Officials understand that the system of raising money needs to be speeded up and improved.”

Tom Scholar, managing director of the Treasury’s financial services unit, and Kitty Ussher, Economic Secretary at No 11, are both involved in the planned reforms, which are likely to include speeding up the process and reducing requirements such as issuing a full prospectus.

This is the first meeting of the rights-issue working party, set up after the Treasury announced its review a few weeks ago. Bankers and investors will be at the meeting along with representatives from the Financial Services Authority and Bank of England. Any reforms will require new legislation.

One banker who will be at the meeting said: “This debate has been going on for decades. But for the first time there is a sense of urgency from all parties. It’s no longer about paper-pushing. Everyone wants changes.”

The UK is the only country to give investors pre-emption rights over shares, giving them first refusal on new shares in proportion to their existing holdings.

But the system has come under attack from big US investment banks such as Morgan Stanley and Goldman Sachs. They have argued that the UK should adopt their placement process, which is quicker; however, even they now accept the principle of pre-emption and are pushing only for the process to be made more efficient and faster.

“There is now a consensus. This is a great opportunity for reform,” said another source.

The working party will consider removing the need for a full prospectus, tightening the timetable so that the period needed for an extraordinary general meeting can be shorter, and introducing a twin-track system for institutions and retail investors.

Paul Myners, a non-executive director of the Bank of England, who led a study of pre-emption rights three years ago, said that the Treasury only had to pull out his report to see what changes needed to be made. Mr Myners recommended a trading update be issued rather than a prospectus, and that EGM notice periods be cut to seven days. He said that nothing in his proposals threatened the interests of companies or their shareholders.

News reported by The Independent