The dark cloud created by the “global credit crunch” lurks around, in turn affecting the value of investments and threatening profitability for banks in the UK. And recent developments at HBOS are a case in point. In a recent announcement, HBOS, owners of Halifax and Bank of Scotland, shared its plans to raise £4bn of extra funding from its existing shareholders. This move comes in with their plans to create “a more challenging environment ahead”. Through the rights issue HBOS plans on writing off £2.8bn from the value of its investments. These investments are even related to the US sub-prime mortgage market.

The HBOS Rights issue was highly anticipated, being one of the two banks, the other being Barclays most expected to follow in the footsteps of The Royal Bank of Scotland, which announced its Rights Issue last week.

HBOS has invited its two million shareholders to invest in fresh shares. They plan to offer two new HBOS shares for every five existent shares. The shares are priced at 275 pence, which is a 46% discount on the opening price on Wednesday- 495 pence.

 The rights issue will not only help HBOS raise its capital but will also provide it the much required liquidity, essential in these times. Other than global growth HBOS would invest the extra funds in residential mortgage and savings business. It will even act as a troubleshooter for any future economic challenges. This move should surely save them from hitting the iceberg in case of a fall in the economy. With the current state of affairs an economic downfall seems near.

HBOS should come out with a prospectus by End-June, which will subsequently be subjected to approval by shareholders, who will vote for or against the proposal at the Extraordinary General Meeting.