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THERE will be smaller rights issues to come among the big financial institutions, but HBOS marked the last of the big ones among Britain’s high-street banks, when it raised £4 billion last week.

Andy Hornby, chief executive, and his chairman, Lord Stevenson, received a mauling from a number of investors, but they have both survived. The real concern is Hornby’s outlook for British banking. If you read between the lines, he is saying the next three years will be weak for the economy and for banking, with pedestrian earnings, matched by conservative lending. For investors, this means the share price isn’t going anywhere and neither is the dividend.

The bank says the £4 billion will strengthen capital ratios, a key measure of financial strength. In reality it will protect the bank against further falls in the housing market to which it has one of the biggest exposures. HBOS is also one of the biggest lenders to and equity investors in Britain’s beleaguered housebuilders.

Hornby says he should be judged over a three-year period. If you follow his script, three years of conservative lending with a return on equity shrinking to the low teens means he will be judged to be a very boring banker. Having seen what happens to excitable ones, perhaps that is no bad thing. It’s just a shame his shareholders are picking up the tab for that expensive lesson.

BAE looks west

WHO will replace Mike Turner as head of BAE Systems? He leaves in August, and I understand his successor could be announced in a fortnight — but not in time for Lord Woolf’s long-awaited report on the company’s ethics, on Tuesday, or the annual meeting the day after.

There are four names still in the frame, two Americans and two Brits. As we revealed in March, BAE has asked the government for permission to employ a non-British national for the first time. There’s not much point in asking to do something if you don’t plan to do it, so be prepared for an American in charge of the UK’s biggest defence contractor.

Bonus points

ON the subject of banking, there was much hoo-ha last week following the attack by Mervyn King, governor of the Bank of England, on the City’s excessive bonus culture. It is a battle King will never win, in the same way that water will always find its own level. But there are ways to address it. A clever point was made by Tom Gosling at Price Waterhouse Coopers, who said bonuses should be held in escrow accounts for three years to ensure deals and trades done by bankers stand the test of time. The complexity of instruments used within banks have now outpaced the ability to police them. Gosling’s proposal goes some way to tackling that problem.

john.waples@sunday-times.co.uk

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