Page 283 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes
trading statement that chief executive Sir Fred Goodwin described as containing “no new
news”.
HBOS has been under pressure from short-sellers since announcing its rights issue on
April 29. In the seven weeks, its shares have fallen from 495¾p. The final collapse yesterday
came even though the bank stated that there had been no material change to performance,
saying: “Current trading, and specifically mortgage arrears performance, is in line with
the group’s expectations.”
Bankers said that HBOS’s decision to confirm in the same statement that the “fully
underwritten rights issue is proceeding according to plan” indicated that Morgan Stanley
and Dresdner remained on the hook for the £4bn. UBS and Citigroup, by contrast, were
released from their obligations in Bradford & Bingley’s aborted £300m rights issue last
week after the buy-to-let lender issued a profits warning.

At the close, Morgan Stanley and Dresdner were suffering a £250m paper loss. Their
underwriting fees, to be revealed in the prospectus next week, are believed to be between
£80m and £100m.
Should they be forced to prop up the issue, it would be the first time underwriters have
incurred a loss since Goldman Sachs at BP’s flotation in 1987, when the stock market
crashed. It could also leave them with effective control of the bank, financiers noted, as the
banks would then own roughly 30pc of the enlarged HBOS equity.

There are still five weeks of trading in HBOS shares before the rights issue closes, by
which time both underwriters expect the stock to recover. They have already placed much
with sub-underwriters. Neither would comment.
The Financial Services Authority (FSA) is also said to be confident that the fund-raising
will proceed, though it declined to comment.

HBOS is Britain’s biggest savings bank, with £158bn of retail customer deposits, and the
largest mortgage lender with 20pc of the market and £235bn on loan.
The regulator is also said to be keenly scrutinising short-sellers for any evidence of “trash
and dump”, whereby short-sellers spread negative information before offloading the
stock. Earlier this year, HBOS was the victim of false rumours that led to an 18pc run and
statements from the FSA and Bank of England.
Question
Analyse the situation and discuss the role of underwriter in the case.

Source: nakedcapitalism.com

11.6 Summary

A share is a share in the share capital of a company. It is a movable property transferable
in the manner provided by the articles of the company.

A share carries certain right and is subject to some obligations.
The share capital of a company means the capital of a company, or the figure in terms of so
many rupees divided into shares of a fixed amount, or the money raised by the issue of
shares by a company.

Companies limited by shares have to issue shares to raise the necessary capital for their
operations.

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