- Rights Issue
- Dividend Cut/Scrip Dividend
- Write-downs
- Executive Compensation
- “The Final Straw”
Rights Issue The Board of HBOS plc has announced a £ 4.0 billion rights issue, net of expenses, to strengthen its capital base and has established a new target Tier 1 ratio of between 8% and 9%. The issue will be on the basis of a 2 new shares for 5 existing ordinary shares at a price of 275 pence per share.
Subscription Cost HBOS has 2 million “small holding” investors. The average cost of subscribing to the rights issue for those 1.15 million shareholders holding between 201 and 1000 shares will be £ 429 from post tax income. This will rise to an average of £1,496 for the 106,679 shareholders with holdings between 1,001 and 5,000 shares.
Dividend
Besides suffering from the dilution costs of the rights issue, shareholders have been told that the target dividend payout ratio will drop from 46% to 40% for the medium term. In addition, the interim dividend for 2008 will be on a scrip basis, returning to a cash payment for the final dividend. Write-downs During the first quarter 2008, there was a £ 970 million negative fair value adjustment in the Trading Books and a £ 1,874 million negative adjustment in the Banking Book. For the full year 2007, the corresponding figures were £227 million and £ 509 million respectively. Executive Compensation From 2008, HBOS has reduced the performance hurdles for its executive long term incentive payments. The bank has implied that based on predicted market activity and overall industry performance expectations, it would have been difficult for executives to have received any awards based on the previous criteria. InvestorVoice Comment: With the current economic climate in the United Kingdom, small shareholders may find it a “big call” to subscribe to the rights issue. Even with the 40+% discount of the subscription price, the concern about the 50% fall in the HBOS share price over the last 12 months, the dilution as a result of the rights issue, the interim scrip dividend and expected future share price performance may make shareholders wonder if taking up the rights is a sensible idea. Even if shareholders are prepared to take the risk, they may be put off when they see that the Board is trying to make it easier for executives to receive increased compensation. Believing that the HBOS Board shows little concern for aligning executive compensation with shareholder interests may just be the final straw.
 |
Subscribe to this comment's feed