Britain’s largest mortgage lender HBOS plans to sell £4 billion ($8 billion) of shares to bolster capital depleted by asset writedowns and a deteriorating housing market.
HBOS fell as much as 2.7 per cent in London trading after the company announced plans in a statement today to reduce its dividend and disclosed an additional £2.8 billion pounds of writedowns for mortgage-related losses.
Chief executive officer Andy Hornby forecast home prices will drop by "mid single digits" this year and next. The share sale will strengthen the balance sheet as HBOS faces rising mortgage defaults and comes a week after Royal Bank of Scotland Group, Britain's second-biggest bank, said it will sell £12 billion pounds of stock to increase capital.
HBOS fell 0.5 percent to 493.5 pence at 8.30am in London, valuing the bank at £18.6 billion. The shares are down 32 per cent this year, more than any other UK bank except Bradford & Bingley, the U.K.'s biggest lender to landlords.
The bank plans to offer two new shares for every five outstanding at 275 pence apiece. HBOS, which gets more than half its funding from the wholesale markets, plans to boost its Tier 1 ratio, a measure of capital strength, to between 6 per cent and 7 per cent to achieve a "step change" in reserves.
The bank has cut back on mortgage lending amid higher inter- bank lending costs and a seizure in the credit markets.
Falling house prices would require the bank, which has a 20 per cent share in UK home lending, to shore up capital under new regulations, Credit Suisse said in a note to investors this month.
The bank, forecasting assets will grow less than 10 per cent this year, will keep a "tight" control on costs, Mr Hornby said. The company doesn't plan to sell assets, he said.
The world's largest financial institutions have posted $310 billion of writedowns and losses related to the collapse of the US subprime mortgage market last year.
Edinburgh-based RBS announced its share-sale plans after writing down £5.9 billion of assets. Barclays's chairman Marcus Agius said a share sale is an "option" for the bank.
Bloomberg