HBOS vows to press on as shares slide to below rights price

HBOS was yesterday forced to deny that its mortgage arrears had jumped after the bank's shares plunged below the offer price for its £4bn rights issue.

Shares in the parent of Halifax, Britain's biggest mortgage lender, fell for the fourth day in a row, dropping 12 per cent to 258p. The price has fallen by £1 since last Thursday. The bank's rights issue is priced at 275p and would fail if the shares did not recover.

In a statement to the stock exchange, HBOS said its rights issue was going ahead and it would issue the prospectus for the offer next week. "Current trading and specifically mortgage arrears performance, is in line with the group's expectations," the bank added. The rights issue, announced on 29 April, is fully underwritten by Dresdner Kleinwort and Morgan Stanley. If the share price is below the offer price when shareholders are able to take up their rights, the investment banks would be left holding the shares.

An HBOS spokesman said: "This bank is not for turning. Our fully underwritten rights issue is proceeding according to plan. The reasons for our rights issue are just as valid today as they were when we made the original announcement. The UK is facing difficult economic circumstances so we think it is right to seek extra capital." The bank said it would issue a "detailed" trading statement next week.

HBOS's shares fell 17 per cent in a few minutes in April, prompting a Financial Services Authority investigation into short sellers spreading rumours to manipulate the share price. Industry sources said no specific rumours about HBOS were found yesterday and that the share slide was due to deepening gloom about the housing market and the economy that hit other banks hard.

HBOS's shares have been battered by bad news on the housing market since Bradford & Bingley warned about rising mortgage arrears on 2 June.