IFR International - 28.07.2018

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Thomas Blott

FROM THE ARCHIVE: 10 years ago this week

THE FINANCIAL CRISIS

From July 26 2008 issue

Not the done thing

The relatively successful result for

the £4bn HBOS rights issue was

overshadowed last week by the

hedging activity of underwriter

Morgan Stanley. The US bank

began selling the stock ahead of

the rump placement in a move

that shocked peers and left its

fellow underwriter at a significant

disadvantage. The bank apparently

abided by the FSA’s rules, but

was felt to have breached the

gentleman’s agreement that

operates in the UK.

When subscription closed for

the HBOS rights issue at 11am

on Friday July 18, most in the

market assumed that little would

happen until the deal’s two

bookrunners – Morgan Stanley and

Dresdner Kleinwort – launched

the placement of the rump the

following Monday.

But when Citi published results

that led the banking sector higher and

HBOS’s stock finally moved above

the 275p rights issue price, traders at

Morgan Stanley chose to dump some

of the unsold underwritten shares

they expected to receive, sparking

near universal outrage among ECM

bankers in the UK.

Morgan Stanley bankers said the

traders acted independently of the

ECM team, on the assumption that

the bank would be left with stock

and this would mitigate its risk. By

the end of trading on Friday the

bank had acquired a short position

equal to 2.347% of HBOS’s stock,

but it did not notify the market until

after the rump issue was completed

on Monday.

Prudently paranoid

Management at Wachovia threw

in the towel last week, once again,

with a fresh series of write-downs

that led to a record US$8.9bn

loss for its second quarter. While

the losses were in line with earlier

guidance, the results showed

a near complete capitulation

across the firm’s mortgage and

commercial lending businesses.

The good news – such as it

is – is that additional capital will

not be needed. The bad news is

that housing markets are likely

to remain problematic until the

middle of next year.

The second quarter was “clearly

a disappointing performance for

which we take responsibility”, said

newly appointed Wachovia CEO

Robert Steel in a conference call

on Tuesday that lasted more than

two hours. “We are serious about

getting on top of these issues

quickly.”

Nomura’s revenues from

equities trading fell 7% and

revenue from fixed income fell

by more than a third