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.