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gillyflower

Bank shares

Can someone explain how HBOS and others are raising money with their shares - I don't get it. I've had some shares sitting in a drawer, so to speak, since they converted to a bank years ago and have just considered them as 'dead money' that doesn't come into my financial calculations. Now I might have to think about them, but don't understand how it works.

Thanks
Gillyflower
Treacodactyl

I think basically if you own shares you are offered new shares at a discount, but you're not obliged to buy them. It appears HBOS might be paying a dividend in shares in which case you'll just get a few shares rather than cash.

From the BBC:

Quote:
Existing shareholders will be offered two ordinary shares for every five existing shares they hold for 275 pence per share.

HBOS said it was offering the shares at a price that was 45% less than the closing price of its shares on Monday of 495.75p.


http://news.bbc.co.uk/1/hi/business/7372514.stm

From http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/04/hboss_massive_uturn.html

Quote:
it is also proposing to pay its first half dividend in shares.


There will probably be a simple explanation and a Q&A bit in one of the newspapers and their online relatives.
RichardW

Take paid for proper profesional advice.

But I would not be buying bank shares the way things are in general economicaly but especialy as they might be taking a bit of a pounding when the bank charges thing is finaly sorted.


Justme
Treacodactyl

Justme wrote:
Take paid for proper profesional advice.

But I would not be buying bank shares the way things are in general economicaly but especialy as they might be taking a bit of a pounding when the bank charges thing is finaly sorted.


I think it depends on how much you intend to invest and how much the advice would cost. The advice might cost more than what you intend to invest! But don't invest anything you're not prepared to lose.

Personally I would think the shares would already factor in the bank charge costs but there could be other hidden problems in the current crisis.
marigold

Why dead money? Assuming they are normal income shares they should have been paying dividends over the years, and they have a sale value (of about £4.82 each today). Depends on how many shares you own really and how wealthy you are, but they do have some value Very Happy .
RichardW

I realy ment that dont invest or not on my say so.

I think the dead money was more a term to convey money not in the general useage in daily household finances.

Justme
Treacodactyl

Justme wrote:
I realy ment that dont invest or not on my say so.


Same here, I wouldn't do anything based on my say so.
sean

Treacodactyl wrote:
I wouldn't do anything based on my say so.


Doesn't that make your life difficult? Wink
MarkS

Re: Bank shares

gillyflower wrote:
Can someone explain how HBOS and others are raising money with their shares - I don't get it. I've had some shares sitting in a drawer, so to speak, since they converted to a bank years ago and have just considered them as 'dead money' that doesn't come into my financial calculations. Now I might have to think about them, but don't understand how it works.

Thanks
Gillyflower


Well, for various reasons (the economy recemtly) many banks are undercapitalised. The amount of ready cash that they have is getting low. So they need more money and given that its pretty impossible to borrow at the moment they are looking at issuing more shares. What this means to you is that your existing 1 share represents a particular tiny fraction of the bank. by issuing more shares the bank is diluting your holding. so instead of having 1/20,000,000th of the bank your share will now be say 1/30,000,000th of the bank. (figures just for illustrative purposes)

you have the option to buy the new shares being issued so that you keep the same proportion of the bank in your hands or not to buy and keep the same value (because by issuing new shares they increase the value of the bank by the amount they raise)

What interests me is the discount being offered - but I havent read the details yet.
vegplot

High finance scratch

Good to see this though

http://news.bbc.co.uk/1/hi/business/7372797.stm
gillyflower

Thanks everyone. There are now some details on their website so I think I understand it - Shareholders will be offered the chance to buy a set number of new shares at a discounted price, you don't have to but but like MarkS says your holding the company is then less (so less dividend?). Then it says that your 'right to buy' the discounted shares has a market value and can be sold if you just want keep the shares you started with and not pay out any money.

These are just the free shares that were given to me years ago when they became a bank. All I know about shares is that you usually have to play the long game with them and that their value is only what the market will pay at any given time and that it is constantly changing - for that reason I have kept them outside my normal finances and don't rely on them.
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