Lead underwriters Morgan Stanley and Dresdner Kleinwort have been left with about 2.5 billion pounds ($5 billion) of HBOS Plc. stock after the biggest shareholder rejection of a European rights offer this decade, Bloomberg News reports.

The two brokers, along with other sub-underwriters, will buy 62 % of the stock on sale in the 4 billion-pound rights offer at 275 pence apiece, Edinburgh-based HBOS said today in a statement. HBOS shareholders initially bought 124 million shares, or 8 % of what the U.K.'s biggest mortgage lender offered in the rights offering. The banks today found buyers for the remaining 30 %.

``The company has got its money, but the underwriters have been left with a whole truckload of stock,'' said James Hamilton, a London-based analyst at Numis Securities Ltd. who has a ``buy'' rating on the bank.

HBOS is the third U.K. bank to struggle with a share sale as the country faces declines in home prices and mortgage lending and higher defaults. Barclays Plc, the U.K.'s third- largest bank, sold less than a fifth of the stock it offered in a 4.5 billion-pound

``The message is loud and clear. People still don't really want to buy banking stocks,'' said Julian Chillingworth, chief investment officer at London-based Rathbone Brothers, in an interview today. He helps manage $21 billion including HBOS stock.

Underwriters try not to hold shares of companies they work for, which ties up their capital. The banks reduced the amount of HBOS shares they could be left with by finding other investors, or sub-underwriters, to guarantee the sale.

In the weeks before the rights offer was completed, Morgan Stanley and Dresdner paid investors to sub-underwrite about half of the stock on sale, two people familiar with the situation said July 18. HBOS directors bought their allocated shares in the offer.

``A substantial proportion of the rights offering was sub-underwritten,'' a Morgan Stanley spokesman said in an phone interview with BN. He wouldn't disclose what proportion.

The New York-based bank also took a short position on HBOS's shares after the rights offering closed, limiting losses. The bank had a 2.3 % short position as of July 18, the bank said in a statement Monday.

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HBOS is paying underwriters about 90 million pounds, the offer document shows. The bank needed the 4 billion-pound sale after writing down a similar amount on credit-related investments. HBOS, which provides mortgages for about a fifth of borrowers in Britain, is trying to weather a deteriorating economy and housing market in the U.K.

HBOS ``achieved what they set out to do,'' said Chillingworth. ``They have shored up their balance sheet and improved overall capital ratios.''

The bank estimated last month that U.K. house prices will decline about 9 % this year and mortgage lending will drop by about a half, forcing more borrowers to default on mortgages as the economy edges closer to recession.

``The bottom line for HBOS is that we've raised 4 billion- pounds of capital,'' said spokesman Shane O'Riordain. ``Banks need more capital in tougher times, and we've got that capital.'' HBOS will be one of the strongest capitalized banks in Europe, with a core Tier 1 ratio, a measure of financial strength, of between 6 % and 7 % this year, O'Riordain said.