The crackdown on short-selling during rights issues hasn’t worked. HBOS shares again momentarily slipped through the rights price yesterday, threatening to leave the underwriters with £4 billion of unwanted shares. Ouch.

There is a long way to go, of course. The capital-raising closes on July 18. There is time for the share price to recover. There is time for things to worsen.

HBOS deserves credit for the detail it has given in its prospectus, which is landing on two million doormats this weekend. It has lifted its skirts as never before, giving chapter and verse on its various exposures. There is some good news for shareholders, first on its souring treasury assets, which have stabilised, and second on the prospects for fattening up margins, as yesterday’s mortgage rate increases demonstrate.

Other areas of HBOS business are less pretty. The bank is not renowned for giving loans to people without checking their ability to repay them, yet we learn that it has lent £32 billion in self-certified mortgages, otherwise known as “liars’ loans”.

It wouldn’t take much for this capital-raising to descend into disaster. First, we do not know how much of the risk the underwriters, Morgan Stanley and Dresdner Kleinwort, managed to lay off to sub-underwriters. The silence suggests not very much, otherwise HBOS would surely publish the numbers. If the bulk of the underwriting has been offloaded to supportive long-term shareholders, that would help to support the price. If not, however, there is a colossal potential overhang of stock that could send the shares into freefall if the 275p level was seriously punctured. Either way, there is a danger of a false market: the FSA should force HBOS to come clean.

Second, millions of stock market tiros are being invited to invest at 275p. Yet there is no health warning in the prospectus explaining that, if the bears continue to have their way, they could pick up the shares for less in the market and would be mad to take up their rights. The omission is perfectly normal for rights issues, but HBOS, with an army of novice investors, may regret not making that clear if the price does sink further. As if it didn’t have enough problems, it risks the charge of mis-selling on an epic scale.

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