May 24--Last spring, HBOS was struggling so it asked shareholders for help. The bank had made so many bad lending decisions that it needed £4 billion to put it on an even keel. Many shareholders bought the story, expecting the company to prosper. Instead, the bank went from bad to worse, ending up in the arms of Lloyds TSB.

Until then, Lloyds shareholders were doing relatively well as the bank was not saddled with bad debts. HBOS changed all that and the combined business, Lloyds Banking Group (LBG), had to go cap in hand to the Government. It received more than £10 billion in cash and the Government took a 44 per cent stake.

The Government then gave it a further £4 billion and in return received preference shares that gave it a dividend of £480 million a year.

Even that was not enough and earlier this year LBG applied to join the Government's Asset Protection Scheme. The details are still being hammered out but the Government will effectively insure £260 billion of bad debts, most of which were made by HBOS. In return, the Government has told Lloyds to redeem the preference shares -- in other words pay back its £4 billion. The bank still needs that money, so it is asking shareholders to stump up.

This time, chief executive Eric Daniels wants to raise the cash through a placing and compensatory open offer. This is like a rights issue but it is quicker. Investors will receive documents this weekend offering them about six new shares for every ten they hold, at 38.4p per share. The offer closes at midday on June 5, so anyone wanting the extra shares must act fast.

LBG has 2.8 million shareholders who own an average of 550 shares each. They have three options -- take up the full entitlement, some of it, or do nothing. The first option would cost about £130 for the average of 340 new shares.

Those who do not take up the full amount might receive a small windfall. Any shares not taken up by shareholders will be sold in the open market at a discount to the prevailing-price but at a premium to the 38.4p offer price. Any excess will be handed to investors.

When this placing was hammered out with the Government, LBG shares were 42p. Today the price is 68.6p. If it stays at this level till the offer closes and the shares not taken up are sold at 60p, non-subscribers will receive about 20p per share -- 60p minus 38.4p, plus a little for costs.

In practice, the shares are likely to drift lower over the next two weeks but some small compensatory payment is still a possibility.