HBOS, Britain's biggest home lender, will seek investor approval for its £4 billion (€5.05 billion) rights issue on June 26th, leaving the bank's shares under pressure until the offer closes in mid-July, analysts said.
They said the success of the rights issue will depend heavily on the finances of the banks' army of two million private shareholders, and could also be hurt by concern about the outlook for the UK housing market.
Technical trading in the rights to participate in the capital raising, which hurt the Royal Bank of Scotland shares during its rights period, could also affect it success, analysts said.
"The current round of capital raising by the UK banks is not meeting with widespread shareholder enthusiasm and HBOS could weaken further during the rights process, especially as housing market indicators also weaken and raise fears of increased impairments and the possibility of a profit warning," analysts at Fox-Pitt, Kelton said in a research note.
HBOS said trading in its nil-paid shares will begin on June 27th. The deadline for signing up for the underwritten rights issue will be July 18th and new shares sill start trading on July 21st. A prospectus will be published in the week starting June 16th.
HBOS has the most retail investors in Britain, with many holding their shares since the demutualisation of the Halifax in 1997. Retail investors own about 27 per cent of its shares, and a rising strain on household finances could reduce the level of acceptances, analysts reckon.
On average, retail investors own 374 shares so will be asked for £410 to prevent dilution of their stake.
HBOS is offering two new shares at 275 pence a share for every five owned.
By 9.52am HBOS shares were down 2.6 per cent at 343p, alongside a weak UK bank sector and broader stock market.
"We envisage some technical selling until the rights issue is completed as a result of limited take up by HBOS's private shareholders as well as the profit warning and restructured rights issue by Bradford & Bingley," Fox-Pitt said.
Thousands of HBOS investors are expected to opt to "tail swallow", allowing them to take up as many rights as possible without spending any more. An investor sells enough rights to pay for the rights of the remainder of their shares, which results in no new outlay but is modestly dilutive.
HBOS said will offer a free dealing service for private shareholders who wish to sell their rights or to tail swallow, excluding investors with a share certificate who want to partially sell their rights.