HBOS bankers stuck with shares as offering flops

By Steve Slater

LONDON (Reuters) - An emergency fund-raising by HBOS, Britain's biggest home lender, flopped as investors took just 8.3 percent of the shares, leaving underwriters trying to sell almost 3.8 billion pounds of shares that are currently under water.

The two lead underwriters in the rights issue, Morgan Stanley (MS.N) and Dresdner Kleinwort (ALVG.DE), on Monday sold 1.2 billion pounds of the leftover or "rump" shares. They are now stuck with the remaining stock, leaving each with shares worth 1.3 billion pounds.

HBOS HBOS.L raised 4 billion pounds from the rights issue -- the 11th biggest ever -- but the troubled fund-raising has left one of the biggest blocks of shares with investment banks since the privatisation of oil major BP (BP.L) flopped in the middle of a stock market crash in 1987.

HBOS is the latest European bank to raise capital to repair its balance sheet and brace for a tough economic outlook.

Its shareholders signed up to buy just 124 million shares in the fund-raising after the market price of its shares fell below the offer price of 275 pence amid worries about UK banks' prospects as the economy falters.

"The obvious reason (for the low demand) is the shares spent much of the time leading up to cut-off under water," said Richard Hunter, head of UK equities at brokerage Hargreaves Lansdown.

"But it's also investors taking a view on the UK property market, which is a decision for the steeliest investors given where we are ... there's a risk aversion," Hunter added.

Morgan Stanley and Dresdner sold a further 443 million shares on Monday at 275p during a "rump" placing, whereby they sought buyers at or above the rights issue offer price. In the final phase, the "stick," they can sell shares to subordinate underwriters or hold on to the shares.