B&B gets its money, HBOS and Barclays don’t

By Edward Harrison On Jul 18, 2008

Now that Friday has come to an end in the UK, we can give a post-mortem to the UK capital raising campaigns from Bradford & Bingley, HBOS and Barclays.

Bradford & Bingley shareholders have approved the bank’s £400m rights issue at an extraordinary general meeting in Sheffield.

The backing means the lender can now go ahead with its cash call, which had been restructured after private equity group TPG withdrew its financial backing.

Standard Life, one of the major shareholders backing the new 55p-a-share rights issue, told yesterday’s meeting it was “clearly disappointing” that shareholders had been called in to help the bank.
–Telegraph, 18 Jul 2008

Given the fact that Bradford & Bingley’s share price has fallen nearly 90% from its high about 2 years ago, you could hardly call this a success. In truth, Bradford & Bingley was on the verge of collapse and could not have survived without this rights issue.

Then there are HBOS and Barclays.

Shareholders have shunned multi-billion-pound fundraisings by Barclays and HBOS as investors owning more than 80 per cent of each chose not to take up their rights to buy new shares.

Barclays said on Friday that shareholders accounting for just 19 per cent of the UK’s third-largest bank had decided to participate in the £4.5bn offering. People involved in HBOS’s £4bn rights issue, which closed on Friday morning, expect an even smaller percentage of investors to have taken up their rights. The bank is expected to announce the level of acceptances on Monday.

Both Barclays and HBOS are guaranteed the proceeds of their share offerings, which were underwritten by investment banks and investors. Nevertheless, the poor response is ignominious, particularly for HBOS, which has seen its shares plunge by more than 40 per cent since the bank announced its rights issue almost three months ago.

The decision to avoid the share issues comes after a rollercoaster few days for global banking stocks, which saw a sell-off in the first half of the week sharply reversed in the past two days, helped by better-than-expected quarterly results from Citigroup and JPMorgan Chase.

–FT, 18 Jul 2008

Barclays avoided depending on the rights issue alone a few weeks back by pulling in Qatari money. Nevertheless, the low uptake by the Barclays and HBOS shareholders is a stunning rejection of the banks by its investors. Does this mean that capitulation has arrived? A month ago, I said:

When individuals, sovereign wealth funds and institutional investors stop giving these institutions more capital, the bottom will fall out of the financial services sector, and we will reach capitulation. As a result, some institutions will fail. But, at that point, the surviving institutions will be very cheap. Then, the financials will be screaming bargains and that is the time to buy.
-Credit Writedowns, Investors in Financials lose $10 billion, 16 Jun 2008

Given that HBOS and Barclays were up 10% and 14% respectively after the rights offer, this definitely doesn’t look like capitulation. I reckon that means much more pain in the British financial services sector lies ahead.