Which bank will seek new funds next?

Apr 23 2008 by Tony McDonough, Liverpool Daily Post

ANALYSTS yesterday began feverish speculation on which bank will be the next to follow Royal Bank of Scotland’s lead by asking shareholders for extra funds.

RBS has this week confirmed what will be Britain’s biggest ever rights issue. It will ask its investors for £12bn.

British banks have been hit by the effects of the global credit crunch and the near demise of Northern Rock has prompted worries about liquidity.

Bank of England Governor Mervyn King signalled there would be more rights issues to come, saying he was “pleased that banks have recognised the need to raise capital”, adding that “we will see more of it in the coming weeks”.

Last night, some experts were predicting that Barclays and Halifax Bank of Scotland could be the next in line for such a move.

Analysts at JP Morgan estimated that four of the UK’s biggest banks were facing a combined £37bn shortfall in capital funding, with Barclays and HBOS most in need of a capital injection after RBS. At one point yesterday, shares in HBOS dropped 5%, while Barclays saw its stock shed 4%.

JP Morgan said in a note that HBOS had an £11bn capital hole, with Barclays short by £8bn, adding that “lack of capital in the UK banks is a systemic issue not only a RBS-specific one”.

Barclays said that there was “no change to our policy in respect of capital”, as the group came under pressure on the London market.

HBOS, which declined to comment, has already seen shares hit after speculation suggested it was poised to launch a rights issue – rumours that were strongly denied by the bank and which were reported to the Financial Service Authority amid allegations of market abuse.

Bradford & Bingley was also recently forced to deny reports that it was planning a fundraising to shore-up its balance sheet.

Carl Cross, investment director at the Liverpool office of Rensburg Sheppards, told the Daily Post the global credit crunch had placed all financial institutions under intense pressure.

He said: “Banks’ capital adequacy positions have suffered and put balance sheets under significant scrutiny.

“RBS, in particular, is vulner- able given its trading operations and arguably ill-timed acquis- ition of Dutch bank ABN Amro last year and this explains its decision to consider a rights issue, together with possible asset sales. Inevitably, given the similar pressure its peers are under, once one bank has taken the big step towards a rights issue, it is more than likely that the rest will follow.”

Stephen English, a senior researcher at Liverpool stockbrokers Blankstone Sington, agreed that RBS was unlikely to be the last bank to “tap shareholders” for extra cash.

He added: “It is not unreasonable to suspect that the recent £50bn rescue orchestrated by the Bank of England on behalf of the government only went ahead on the tacit agreement that banks finally address their funding issues.

“This points to likely rights issues from HBOS and Barclays as well as Bradford & Bingley and Alliance & Leicester. First mover advantage is a real consideration for the banks, with those heading the queue enjoying a better chance of securing their total funding requirement.

“In addition, larger rights issues (as a percentage of market cap) generally lead to greater out-performance going forward with a much firmer line drawn under solvency concerns.

“While painful for investors who have endured significant losses since last August, a bout of rights issues across the sector should help to finally draw a line under capital adequacy concerns.

“This would help to restore confidence to the banking system, with banks once again willing to lend to each other.”

BILL GLEESON: PAGE 8

tonymcdonough