THE high-street bank HBOS will tomorrow admit to one of the most disastrous rights issues in corporate history when it concedes that as few as 10% of its investors took up its £4 billion share offer.

Its two underwriters, Morgan Stanley and Dresdner, will have to place £3.6 billion of shares over the course of Monday or Tuesday.

If they are unable to place the shares at the rights-issue price of 275p or above, they will be forced to take them on to their own balance sheets.

The two investment banks are thought to have sub-under-written about 40% of the issue but it still means they could be left with £1 billion worth of shares each.

Barclays said on Friday that only 19% of its investors took part in its £4.5 billion placing.

Last week as investors were making up their minds whether to subscribe for equity in HBOS, shares in the UK banking sector plunged on fresh concerns over the viability of some of America’s big banks.

Shares in HBOS dropped to 254p, well below the rights-issue price, providing little incentive for institutional investors to take part. It is thought that many retail investors, who account for 25% of the group’s investor base, shunned the issue.

It is expected that the low take-up will encourage regulators to shorten the time taken to conduct a rights issue.

When HBOS originally announced its rights issue two and a half months ago, it was seen as being heavily discounted against a share price that was then standing at 500p.

Since then the price has fallen sharply and the bank has been the victim of several scare stories about its finances.

Despite an investigation by the Financial Services Authority, the regulator was unable to establish who profited from spreading the rumours.

The revelation of the low take-up could put further pressure on HBOS shares. They closed on Friday at 282p, but the knowledge that a large percentage will have to be sold on the market could see them drift beneath the rights price.

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