Britain's biggest mortgage lender HBOS said on Tuesday it will ask shareholders for $7.9-billion to strengthen its balance sheet after more heavy credit-crunch writedowns.

The news came one week after rival Royal Bank of Scotland said it would raise fresh funds of almost $24-billion to shore up its finances in Britain's biggest-ever share rights issue.

"The board of HBOS announces a rights issue to raise £4.0-billion net of expenses to strengthen the capital base," HBOS said in a statement on Tuesday.

The bank said the issuing of new shares for current shareholders — which was widely expected — was required to "consolidate its competitive position."

HBOS also wrote off a further £2.8-billion on investments hit by the credit crunch.

More than two-million of the bank's smaller shareholders face paying out to maintain their stake in the organisation in the rights issue. Under the terms, they will be offered two new shares at 275 pence for every five held.

In early morning trade, HBOS shares rose 1.77 percent to 504.50 pence on London's FTSE 100 leading shares index. The FTSE was up 0.46 percent to 6118.50 points.

HBOS Chief Executive Andy Hornby said that the move would help boost the bank's core tier one ratio — a key measure of how well-capitalised a bank is — to between six and seven percent.

Investors will also receive an interim dividend in shares as HBOS looks to conserve its cash.

"We are planning for a more challenging environment ahead and the proceeds of the rights issue should ensure that we benefit from strong (capital) ratios even if the macroeconomic environment deteriorates further," Hornby said.

"In the long term we remain optimistic about the fundamental prospects for our core businesses."

HBOS claims two in five British households as a customer through its subsidiary Halifax. The bank's shares have fallen by about 27 percent in the last three months because of pessimism over the UK housing market.

Many leading global banks have suffered heavy losses connected to the unravelling of the collapsed US subprime or high-risk home loan market and the subsequent tightening of lending criteria.

AFP