Shares in the two bailed-out Scottish banks were under continued pressure yesterday as institutions pondered whether or not to participate in the raising of more than £23bn of new capital which will otherwise come from the taxpayer.

Shares in the two bailed-out Scottish banks were under continued pressure yesterday as institutions pondered whether or not to participate in the raising of more than £23bn of new capital which will otherwise come from the taxpayer.

Amid the relief rally in the market which lifted the FTSE-100 by 325 points, or 8.3%, Halifax Bank of Scotland lost a third of its value to close at 90p, while Royal Bank of Scotland fell 8.3% to 65.75p.

Lloyds TSB, meanwhile, was some 16% adrift at 162p at the close, after cutting the value of its merger offer for HBOS from just over 0.8% to around 0.6% of its own share value, putting a 93p a share value on HBOS at the closing prices and more than halving the original £12bn value of the offer last month.

Analysts said the amended offer looked more likely to gain the approval of both sets of shareholders. "The gap between their values has come much more into line," said Nic Clarke, banking analyst at Charles Stanley stockbroker. "I think probably the market turmoil has increased the chances of shareholders voting for it."

Royal Bank shares swung between 77p and 50p before settling around the 65.5p issue price of the new shares which will be underwritten by the government. Share- holders will be invited to subscribe for all or part of their pro rata entitlements in the £15bn rights issue.

HBOS said it was placing £8.5bn of shares with the government, "subject to claw-back of pro-rata entitlements by HBOS shareholders", at a price of 113.6p.

Royal Bank said new institutional shareholders may also be invited to subscribe for new shares under its offer. Prospectuses for both offers are likely to be issued later this month for completion in early December. The attitude of institutional investors will dictate whether as predicted the government ends up taking all the offered shares, leaving shareholders owning only 37% of Royal and 59% of HBOS only months after being tapped in rights issues for £12bn from Royal and £4bn from HBOS.

"They have already had a massive swallowing of these stocks this year and it is whether they have any more appetite," said Richard Hunter at broker Hargreaves Lansdown. If they boycotted the issue the overall position of shareholders would be weakened, but if any institution struck out on its own it risked not being followed.

"To collectively invest £15bn on top of the £12bn would be taking a hyper- optimistic long-term view of the firm's prospects. From a big shareholder perspective, it is quite a difficult one."

Last week Standard Life Investments put its head over the parapet to welcome the fact that the government was "respecting the capital structure" in giving shareholders pre-emption rights, amid what proved to be optimistic speculation that share- holders would keep a 60% interest. SLI was unwilling to comment yesterday.

Clarke said of the Royal Bank: "Last time 92% of shareholders subscribed, and I think the appetite is going to be less and people are going to be apprehensive. However, the share price is a quarter of what it was the last time it came onto the market and we are in a different world - it is underwritten by the government so the process should not be as damaging as it was last time."

Clarke commented that after running a "capital- lite" model, the banks had "probably gone to the other extreme, to see them through a serious recession".

Bryan Johnston of Bell Lawrie in Edinburgh said: "The renegotiation of the terms for HBOS are dis-appointing, and clearly there are some institutions who want to break off any association." But he added: "I am quite surprised at the way the share prices have fallen. The underlying point is that the government has come forward and underwritten the UK banking system. It is effectively guaranteeing deposits and there is still a prospect in due course of a return for equity share- holders." Small investors should "hold on", Johnston said.

Hunter said glimmers of hope for the Royal included possible asset disposals, to help repay the additional £5bn of preference shares taken by the government, and "the potential for RBS to become vulnerable to a-n-other bank looking for a foothold in the UK market - that could provide some uplift for the shares".