Morgan Stanley and Dresdner Kleinwort have been left holding £2.5 billion worth of HBOS shares after the lead underwriters on the UK bank's rights issue offloaded less than 40 per cent of the stock on offer.

It emerged this morning that just 8.29 per cent of its £4 billion rights issue had been taken up by its shareholders.

However, by the end of trading today, a further 29.53 per cent of the stock had been subscribed to by investors at the 275p a share offer price, a third of which had already taken up by sub-underwriters.

HBOS's shares today closed below the offer price, down 17.5p down at 264.5p.

Morgan Stanley and Dresdner Kleinwort now face taking £2.5 billion worth of HBOS shares onto their own balance sheets.

However, a spokeswoman at Dresdner said today: "We will manage any stock as we consider appropriate. We see value in the shares and are not under pressure to sell.”

Although the UK banking sector is under increasing pressure in the current economic climate, HBOS's rights issue has been further hampered by the large number of private investors in the bank and the long lead time between the announcement of the cash raising and today’s dramatic conclusion.

Despite one of the worst rights issues in City history, HBOS was upbeat today.

"The bottom line is, we've raised £4 billion of capital," said a spokesman. "Just like ships need more ballast in heavy seas, banks need more capital in tougher times."

The bank has a target range for core equity Tier one, a closely watched measure of financial strength, of between six and seven per cent and expects to be trading at the top end of this range by the end of the year. The current figure is 5.7 per cent.

"That would make HBOS one of the strongest capitalised banks in Europe," the spokesman said.

He added: "Rights issues are like capitalism. They are the least worst way of raising extra cash."

The Financial Services Authority, the City regulator, is looking at ways of shortening the rights issue process to ease uncertainty over the outcome.

On Friday, rival bank Barclays said just 19 per cent of its £4.5 billion placing and open offer had been subscribed for by investors.

As a result, the financial arm of the Qatari government became the bank's biggest investor, holding 8 per cent of the equity.

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