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afwestlondoner

Listed below are comments made by afwestlondoner between Tuesday, 22nd July 2008 and Tuesday, 22nd July 2008.

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Underwriters short HBOS 10:18am on 22 Jul 2008 Having worked in finance for many years I am upset not by what has happened, but why HBOS management did what they did in the first place.

As it happens, I did still take up my rights in the issue even though I guessed (correctly) that the share price would adjust to the 275p level or below before the closing date. That is even lower today does not surprise, or bother me. Halifax remains a strong company and with £4bn extra capital, probably even more so now!

What does gall though is that the management action has of itself created this current situation. So, as many have already reported, deserve to lose their jobs.

Rights issues are a very good form of raising fresh capital for young, growing companies. Stockmarkets (or more correctly, investors) overlook the short-term negative potential impact on the share price knowing that the earnings will continue to grow and so make the Company more valuable in the medium/longer-term. Sometimes the share price never fully "corrects" to the new share price giving a profit to existing shareholders who take up their rights.

But in this case the market knew that HBOS needed more cash merely as a buffer for bad times ahead, not to grow the company. Top management should have known this and that what they were doing was simply destroying the value of the company and upsetting the shareholders at the same time! They have issued 40% more shares at a 40% discount to the pre-rights share price. Ergo, the other 60% (or 100% of the pre-rights shares) have to be priced at 275p too....

Since this was a move forced on HBOS by tough market conditions, canny investors knew from day one that the share price would correct to this level. Management has not lied or misled anyone, the prospectus was a model of its kind... But I question why a simple rights issue? Other ways of issuing new capital - preference shares, capital bonds......do exist.

A preference share rights issue seems better since preference shares are often issued at a premium not a discount to the current share price, but with a correspondingly high dividend rate to compensate the buyer. Or Convertible bonds - giving the holder the right to convert the bonds into shares later (usually at a premium to the current share price) again with a higher interest rate on the bonds to compensate.

For a Company like HBOS that is clearly going through a tough period I would have thought that preference shares/convertible bonds could have seemed a better route. The immediate cost would have been higher in terms of dividends/interest paid, but it certainly would not have seen the ordinary share price simply cut in the same way that the recent decision has.

Or did they already know that no institution would buy their preference shares or bonds if offered???

I therefore would certainly support a no-confidence vote against the current board.

I would also like to find out if any of the Board failed to take up any of the millions of shares that they were entitled to as part of the process. If they didn't then that would just be the icing on the cake....

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afwestlondoner