Shares in HBOS came under yet more pressure today after Britain's biggest mortgage lender revealed its £4 billion rights issue was an even worse flop than the market was expecting.

Only 8.3% of shareholders took the chance to subscribe to new shares, a result that would have been a disaster for the bank if the rights issue had not been underwritten by Morgan Stanley and Dresdner Kleinwort.

The investment banks were today trying to place £3.5 billion worth of stock at a discount to the share price.

With the shares tumbling again, off 10p at 272p - 3p under the rights issue price - this looked like an increasingly awkward task.

Morgan and Dresdner have just two days to offload 1.3 billion shares, after which they have to buy up the rump themselves.

HBOS shares were at 550p when the rights issue process started three months ago. Regulators are seeking ways to shake-up the process given how difficult the banks have found it, but HBOS regards rights issues as "the least worst form of raising extra cash".

The bank makes the point that rights issues at least treat shareholders equally, which is important given that HBOS has 2.1 million small investors.

A spokesman said: "The bottom line is that we have raised £4 billion. We take the view that the economic outlook is darkening, and it is right to seek additional capital. Just as ships needs more ballast in rough seas, banks need more capital in tougher times."

HBOS claims it could not have managed the fundraising differently and that it was a victim of circumstances.

"The rights issues was conducted in the middle of a fierce financial storm with unprecedented volatility in bank stocks," said a spokesman.

HBOS reckons that its tier one capital ratio - a key measure of financial strength - will be 7% by the end of the year.

That will leave it as one of the best capitalised banks in Europe. Even so, the fact that so few shareholders were willing to show faith in the company is a major embarrassment to the board.

All the directors, including chief executive Andy Hornby and chairman Lord Stevenson, took up their own allocation in the rights issue.

Dresdner and Morgan are likely to have taken out insurance against being left holding so many unwanted shares.