HBOS offers choice of asset disposal or rights issue

HBOS offers choice of asset disposal or rights issue

HBOS yesterday asked its biggest shareholders whether they would be prepared to support a £4bn cash call or prefer the sale of non-core assets, as the bank tries to shore up its balance sheet.

The sale of assets such as St James's Place and Clerical Medical is thought to have been suggested ahead of today's annual meeting amid expectations that HBOS will confirm that it is to embark on a rights issue.

The fact that HBOS's shares remained flat yesterday, down 1.25p at 496.25p, is likely to have signalled to the bank's board that the City believes a rights issue is inevitable.

Its financial advisers, Morgan Stanley and Dresdner Kleinwort, are thought to have sounded out shareholders, many of whom are already being asked to dig into their pockets to support the record-breaking £12bn rights issue by Royal Bank of Scotland, in advance of a board meeting yesterday afternoon.

While the views of City institutions have been received in private, hundreds of the bank's 2 million private investors will have a chance to give their views at today's shareholder meeting in Glasgow.

It will put pressure on chief executive Andy Hornby, who analysts say had assured them that such a fundraising would not be needed. Some critics point to his relatively short career in banking - he joined Halifax from the supermarket chain Asda nine years ago. He will also feel the heat over a trading update that is expected to show the bank will need to take additional.....continued below

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write-downs of as much as £3bn as a result of the fall in value of investments affected by the credit crunch.

HBOS has a stronger core tier-one ratio - used by regulators to measure financial solidity - than RBS or Barclays. But a £3bn write-down could cut HBOS's ratio to 5% from 5.7%. Analysts at Cazenove said: "If the £3bn write-down figure is correct (and is taken against the trading book), then in our view the board will consider that a 5% equity tier-one ratio is too low."

This would drive HBOS below RBS, which is trying to lift its ratio from 4.25% to 6% through its fundraising, and Barclays, which has a ratio of 5.1% but wants to raise it to 5.25%.

HBOS is expected to stress that it is has no urgent need to raise funds but believes it should do so to bolster its finances before a downturn in the economy and the housing market.

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