Ouch. HBOS shares this morning dived as low as 291.5p. That is perilously close to the 275p price at which the bank is offering new shares in its £4 billion rights issue.

When it announced the capital raising in April, its shares were trading at just under 500p and it was able to describe it as a deeply discounted offering. That's no longer the case.

The slide is partly about hedge funds short-selling the shares in the hope of easy arbitrage gains when the nil-paid rights start trading. But it is also about souring sentiment generally over banks.

Lehman Brothers' fresh losses yesterday on asset-backed securities inevitably make one wonder about the solidity of some of HBOS's treasury assets, not least £7 billion worth of so-called Alt-A mortgage assets. (Alt-A occupies the murky territory somewhere between prime and sub-prime.)

The increasingly grim prospects for the UK economy and house prices are also weighing on sentiment. Much will depend on the trading statement that HBOS is due to put out next week alongside its prospectus.

The logistics of a rights issue to two million small shareholders have made this a very long drawn-out affair. The closing date is 18 July.

It is shaping up to be a nerve-wracking five weeks not just for HBOS, but for its underwriters Morgan Stanley and Dresdner Kleinwort.

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