Shares in bail-out banks battered on fears investors will snub new issues

Shares in Lloyds TSB, Royal Bank of Scotland and HBOS tumbled again yesterday, leaving the tax payer to buy at a premium

BANKING shares were battered again yesterday, with more than £4 billion slashed from the value of the three banks set to be bailed out by the UK government.

HBOS, Lloyds TSB and Royal Bank of Scotland were three of the worst performers on another difficult day for the FTSE 100 index, which shed100.8 points to 4,132.2.

All three banks are offering investors new shares under the government's £37 billion recapitalisation plans.

City experts last night warned that the latest falls were partly fuelled by fears that most institutional investors would snub the new issues. They said share prices were also being hammered because the sector was "squarely in the firing line" of the gathering UK recession.

If institutions cold-shoulder the capital-raisings, taxpayers could be left with nearly 60 per cent of RBS and more than 40 per cent of any Lloyds/HBOS combination, amid widespread concerns about how government involvement might affect the commercial decisions of those banks.

Keith Bowman at broker Hargreaves Lansdown suggested the scale of the institutional snub to the capital-raisings could be as high as the 92 per cent left with underwriters in the £4bn HBOS rights issue this summer.

Bowman said:

"For those institutions who do feel bank stocks offer long-term opportunity for recovery, they would be more inclined to buy in the market at these prices than take up the new offer."

On paper, the taxpayer would currently lose about £8bn on maximum stakes in RBS and any combined Lloyds/HBOS.



Under the government's recapitalisation plan, RBS is raising £20bn at an offer price of 65.5p. That compares with an RBS closing price of 44.7p yesterday, down 12 per cent. Lloyds TSB's £5.5bn capital-raising at an offer price of 173.3p compares with a closing price yesterday of 149p, down 10 per cent. HBOS is raising £11.5bn, with its offer price of 113.6p way above the 74.5p closing price last night, down 14 per cent.

"It's extraordinary that in just over two months, the value of these bank shares could have fallen so catastrophically," said BGC Partners' David Buik.

Lloyds TSB shareholders will have their chance to vote on the bank's takeover of HBOS and its government-backed fund-raising plans tomorrow. RBS puts its own capital-raising to a shareholders' meeting on Thursday, while HBOS investors get to vote on the Lloyds takeover and the capital-raising in December.

• The whole of Barclays' board is set to stand for re-election at its next annual shareholder meeting after disquiet over its planned fundraising.

Barclays has faced a backlash from some shareholders over the terms of it plan to raise £5.8bn from the Middle East. Some investors believe the terms are better than those on offer to existing shareholders.