Bank rights issues now ‘inevitable’

Apr 28 2008 Evening Gazette

THE latest anticipated call on shareholders of a high street bank for billions of pounds in extra funding was “inevitable” according to a Tees business expert.

The board of Halifax Bank of Scotland (HBOS), the UK’s biggest mortgage lender, was today said to be considering a £4bn rights issue.

If it goes ahead with the plans at its annual meeting tomorrow, HBOS would be the second major bank to call on shareholders for funds to shore up finances hit by the global credit crunch.

Royal Bank of Scotland last week called on shareholders for £12bn to improve its balance sheet. Barclays is said to be considering a similar move.

Alastair Thomson, head of Teesside Business School and chairman of the Tees Valley branch of the Institute of Directors, said: “It’s inevitable that another of the major banks would make such a move.

“It’s not great news, but on the other hand it shows investment in the future of the bank for the long term. It puts the financial situation out there on the table - and cash will ensure future stability.”

HBOS, which declined to comment on the rights issue, is expected to reveal a write-down of up to £3bn.

The company - one of the UK’s “big five” banks - is feeling the squeeze on property investments caused by the cooling housing market. According to a survey today from house-price information group Hometrack, houses are now cheaper than they were a year ago.

And as banks feel the pain, high street institutions may no longer be the first port of call for businesses looking for investment, Mr Thomson added.

“Banks have tightened up their lending criteria and they are no longer leaping to finance every business proposition that comes along.

“For businesses looking elsewhere for funding it’s important to think about how much they are paying over the term of a loan.”