As the storm intensifies HBOS Plc, battens down the hatche. Already battered by on mortgage-related write downs of 2.8 billion pounds ($5.6 billion) resulting in downgrades by Moodys the bank announced that it will reduce its dividend this year, sell 4 billion pounds ($8 billion) of shares to replenish capital depleted by the write downs. The bank had repeatedly said that the balance was strong, but now seems to have found the need to take a self dilutive path to fresh capital. The issue of shares is not a sure fix by any means however.
“The rights issue is not at all a good deal for investors,” David Broadley, an investor from Glasgow, said at the bank’s annual investors’ meeting. “It is pouring good money after bad.”
The disagreement over the rights issue is standard. It is what HBOS is saying about securitization vs what they are actually doing in the securitization market that is a confusing.
HBOS Plc Britain’s biggest mortgage lender, warned on Tuesday that the securitization market, an important funding source for consumer lending, is set to stay shut through 2008.
HBOS itself last week structured a 9 billion pound residential mortgage-backed deal that is being retained to boost funding flexibility. Analysts said the deal could potentially be used for the Bank of England’s new liquidity scheme, although HBOS declined to comment.
So no market, but the bank of England will buy them up return for Treasury bills. Haven’t we heard of something like this somewhere else?