Two City banks will try to offload as much as £3.6 billion of unwanted HBOS shares today on to a highly nervous London stock market in one of the biggest tests of sentiment towards the banking sector.

Morgan Stanley and Dresdner Kleinwort, the lead underwriters on HBOS's £4 billion rights issue, have two days to try to place those shares not taken up by the banking group's existing shareholders at the close of the offer period at the end of last week.

The two banks, acting as agents for HBOS, will offer shares to both existing and potential new investors at a minimum of 275p each. Any shares not allocated will fall back into the two banks' hands as underwriters.

The attempt to place the rump of the HBOS rights issue comes as the bank is expected to tell the stock market early this morning that its shareholders took up as little as 10 per cent of its rights issue.

The admission, after HBOS's shares traded heavily below the issue price last week, means that the company's capital-raising, unveiled in April, has been one of the most disappointing cash calls in British corporate history.

Barclays, the rival bank group, said on Friday that existing investors had subscribed for only 19 per cent of its £4.5billion placing and open offer, which meant that investors based in Qatar become its biggest shareholders, with a stake of about 8 per cent.

A failure to place HBOS shares could leave the underwriters each sitting on as much as £1billion of shares, even after they have placed shares with other institutional underwriters that have already agreed to buy shares for 275p.

The attempt to place such a large amount of stock in the market is also expected to send HBOS's share price lower.

David Buik, of BGC Partners, the brokerage, predicted yesterday that HBOS shares would open today as much as 7 per cent down as investors braced themselves for a deluge of shares into the market. Mr Buik said that he expected HBOS shares, which ended last week at 282p, to open at 268p to 271p today. “There is bound to be a pullback,” he said. “I would expect the whole FTSE to open below the plimsoll line.”

Banking sources noted that the underwriters are required to offer the shares at 275p and no less and that the placing of the rump of a rights issue is a standard City convention. They said that bankers did not feel under pressure to sell the shares. However, they accepted that it was rare for so much of an issue to remain unplaced.

One banking source said: “The market was concluding a small take-up late last week. There is every reason to try to place the shares.

“A number of investors have been pretty taken with the value proposition. HBOS is absurdly cheap. But it is such a volatile market. You can't predict what will happen.”

HBOS shares fell to an historical low of 225p last Wednesday amid a sharp downturn in confidence in the banking sector, driven by a similar drop in America as Wall Street banks including Citigroup and Merrill Lynch prepared to report quarterly results. HBOS shares closed at 254p on the day, a crunch day for investors to notify the custodian banks guarding the shares whether they would be taking up their share allocations.

The shares rallied late in the week, closing at 282p on Friday, giving the underwriters a potential boost today.

Several factors made the rights issue more difficult. HBOS is a quarter-owned by individual investors, many of whom shunned the offering.

The length of the rights issue process also left HBOS vulnerable to short-sellers, who profit from betting that a company's share price will fall. Banking sources said that up to 40 per cent of the issue had been shorted.

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