Britain’s biggest mortgage lender HBOS’ £4bn rights issue has proved an overwhelming failure with a mere 8.3% of shareholders taking up the chance to subscribe to new shares.

Shareholders had been advised by banking experts and the bombardment of negative media coverage not to take up the issue unless the share price took an unexpected and unlikely turnaround, therefore such a disappointing outcome was always likely despite been offered a sweetener of two new shares at the heavily-discounted price for every five shares they already owned.

What had hoped to have been a resurrecting move was only saved from being a complete disaster after both the usually reluctant buyers Morgan Stanley and Dresdner Kleinwort saved HBOS blushes by underwriting the rights issue. As predicted, both investment banks now face the task of placing £3.5bn worth of discounted stock to the share price.

With rights issues considered one of the more acceptable methods of raising additional capital, it was believed that the rights issue was the most appropriate and fair approach when dealing with their vast 2.1m small investors. However HBOS were always in for an upward struggle as shares which had once traded at 550p when the rights issue ball had began rolling three months ago, continued to crumble down to 275p, an un-attractive 3p under the rights issue price.

Despite the disappointing outcome, HBOS aren’t alone in their attempts to utilise their shareholders for extra revenue as Barclays and Royal Bank of Scotland successfully secured £4.5bn and £12bn respectively.

An HBOS spokesman stated, “The rights issue was conducted in the middle of a fierce financial storm with unprecedented volatility in bank stocks. The bottom line is that we have raised £4bn. We take the view that the economic outlook is darkening, and it is right to seek additional capital.”

Morgan and Dresdner now have the unenviable task of needing to offload 1.3bn of shares in just two days, after which they would have to buy up the bulk themselves.