Market report: Rights issue takers lose out as banks pounded

The big High Street banks took another tonking today, leaving investors who this summer took up or underwrote £16 billion of rights issues from HBOS and Royal Bank of Scotland nursing hefty losses.

Almost £3.3 billion was wiped from the £12.2 billion stock-market value of HBOS, which earlier this year tapped shareholders for an extra £4 billion at 275p. The shares today slumped a further 64.2p to a low of 168.3p, having briefly touched 137.4p. That makes the deficit for the past two days 124.6p, and compares with the 1154p at which the shares were changing hands in February last year.

The company insisted this afternoon that it continues to access wholesale funding markets and remains a strong bank with significant capital resources. Citigroup is among those that do not appear convinced. It continues to rate HBOS a sell, and has slashed its target from 250p to 200p.

Royal Bank of Scotland, which tapped shareholders for a record £12 billion of cash by issuing new shares at 200p, was today down 28.5p at 182p. Barclays was off 13¾p at 302¼p — bad news for those sovereign wealth funds that paid from 282p to 296p in two separate tranches.

Buy-to-let lender Bradford & Bingley fell 1¼p to a record low of 30¼p after Moody's downgraded its long-term bank deposit and senior unsecured debt ratings from Baaa1 to a junk equivalent of Baa3/p-3.

London Stock Exchange shares briefly dropped below 700p before reducing the loss to 7p at 729p. The LSE had a joint venture with Lehman Brothers that enabled institutional investors to trade on the ill-fated broker's order inflow.

Elsewhere, there was still no sign of a slowdown in the bloodletting among London investors, with prices again coming under the hammer.

Gossips say the sell-off has been exacerbated by traders at Lehman being ordered to unwind their remaining open positions. These are likely to include any open short positions held against hedge funds and contracts for difference, where the margin call will have widened dramatically.

But Lehman can no longer trade in its own right, which means the business will have been done through a third party. Dealers said this has only increased the uncertainty surrounding the market.
The FTSE 100 index briefly dipped below the 5000 level for the first time in three years in the wake of the Lehman bankruptcy protection filing.

It later reduced the fall to 155.1 points at 5049.1 after smashing through the 5060
support level. That stretched its deficit over the past two days to 367.1 points, or 6.7%.

There were few signs of the selling pressure on shares easing when trading kicked off in New York this afternoon. Investors looked on helplessly as shares of American International Group halved to $2 before being suspended. Third-quarter profits at Goldman Sachs also fell short of expectations.

Shares gyrated wildly, but managed to trade above their worst levels of the day with the Dow reducing its deficit to 23.4 at 10,894.1.

Back in London, interdealer broker Icap shed 37p to 398p, on worries about the impact of the current stock-market downturn on its profits. Insurers were also weak, reflecting the problems of US insurance giant AIG. Old Mutual lost 6.4p at 84.2p, Legal & General 6.4p at 85.7p and Aviva 37p at 452½p.

The broader-based FTSE 250 index endured a volatile session. An early rally saw it reduce its deficit to just five points before another wave of selling saw the loss extend to 285.8 points at 8422.6. This helped underpin claims Lehman had begun winding up remaining open positions, particularly among second-liners.

Oil stocks reflected a softer crude price, with Heritage Oil down 40¼p at 168½p and Venture Production losing 67½p at 589p.