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Trading Lessons

Hedge Funds Target Halifax, HBOS as Shares Crash 30%

Companies / UK Banking Sep 15, 2008 - 12:08 PM GMT

By: Nadeem_Walayat

Companies Best Financial Markets Analysis ArticleFollowing on from the collapse of Lehman Brothers during the weekend, the financial sector was expected to be hit hard and to drag the overall market lower by some 5%. Whilst most of the big UK banks experienced falls in the order of 15%, Britain's biggest mortgage bank, Halifax Bank of Scotland (HBOS) crashed by over 30% as clearly hedge funds targeted the bank as a candidate for financial collapse, along the lines of Northern Rocks bank bust in Sept 07.


Chart - Bigcharts.com

This is not the first time that amidst a fast breaking banking crisis that HBOS has been specifically targeted by hedge funds, back in March of this year following the bailout of Bear Stearns into the arms of JP Morgan, HBOS experienced a similar crash in share prices in the face of hedge fund short selling. At the time this raised statements from regulators warning speculators against such action. The Bank of England and the FSA took the unprecedented step of issuing statements that categorically denied the rumours. The FSA went further that it had launched an investigation into the trading activity surrounding HBOS and other banks this morning and accused traders of 'market abuse by spreading false rumours to profit from short-selling.

The assault on HBOS forced the company to release the statement "HBOS is a strong financial institution. The group's capital ratio - a core measure of financial strength - is the strongest of the major UK banks."

The Bank of England took immediate action during the morning to release £5 billion in emergency funding which was soon lapped up by distressed banks such as HBOS that are unable to borrow on the frozen interbank money markets due to the increased risk of default due to their exposure of liabilities to Lehman Brothers.

As the credit crisis unfolds the UK government may well yet be forced to takeover the mortgage giant HBOS at some point, much as the US government were forced to nationalise their mortgage giants Fannie Mae and Freddie Mac which were also once seen as invulnerable and too big to fail.

Implications for UK Savers

Currently UK savings are secured at £35,000 at 100%, this is proposed to rise by the end of this year to the first £50,000 at 100%. However as the Northern Rock example illustrated that the Government was prepared to step in and guarantee ALL savings at 100%, and therefore giving an unequivocal guarantee to savers so as to bring the Northern Rock bank run to a halt. Similarly should other retail banks fall over the edge of the credit crisis cliff, then similarly the expectations are for 100% security for all savers. However savers should take note of the difference between a high street retail bank such as Northern Rock and an Investment bank such as Lehman Brothers, therefore ensure that they definitely do limit exposure to non retail banks to £35,000.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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