"HBOS raises £750m of new capital ..."

The newspapers are full of the gory details of the Bear Stearns debacle, which is just the US version of the Northern Rock debacle over here, i.e. five times as big *yawn*.

The HBOS story* is a lot closer to home. I don't normally comment much on these financial stories because they are usually full of arcane jargon and inaccurately reported anyway. Even though £750m is not much money for a bank like HBOS, a few killer facts deserve emphasising:

HBOS has raised £750m of new capital at a staggering interest rate of almost 9.5% ... The interest HBOS is paying investors in the new bond is roughly [3.5%] higher than the rates it is charging mortgage customers.
...
Although HBOS has one of the strongest balance sheets among the UK banks, its chief executive, Andy Hornby, has repeatedly warned the markets that the credit crunch is far from over.
...
The new capital, raised through a 10-year bond, is structured to rank on a par with shareholders’ equity.
...
The fundraising move is designed to help maintain HBOS’s Tier 1 capital ratio at 7.7%.

So this isn't a short term fix - they are stuck with this for ten years; seeing as banks make money by charging higher interest rates than they are paying, that suggests that HBOS' mortgage interest rates are going to sky-rocket fairly soon; and unlike most other banks, they have given up trying to pretend that all-is-well in the City.

That Tier 1 ratio of 7.7% means AFAIAA that if they have to write down the value of the money they have lent to borrowers by 7.7% or more, the bank is completely wiped out. Yes, I know that historically, a Tier 1 ratio of 7.7% is perfectly sufficient, but not now it ain't.

* H/t Cheekie Charlie at HousePrice Crash