Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Market Dow 30k before End of 2020? - 13th Jul 20
Credit Market Investments Turned Into End-User Risk Again - 13th Jul 20
Investors Are Going All-In on This Coronavirus Proof Industry - 13th Jul 20
5 Vital Insights That You Can Gain From Instagram Trackers - 13th Jul 20
Stop Believing The 'Economy' Is The Same As The Stock Market - 12th Jul 20
Spotify Recealed as The “Next Netflix” - 12th Jul 20
Getting Ahead of the Game: What Determines the Prices of Oil? - 12th Jul 20
The Big Short 2020 – World Pushes Credit/Investments Into Risk Again - 11th Jul 20
The Bearish Combination of Soaring Silver and Lagging GDX Miners - 11th Jul 20
Stock Market: "Relevant Waves Vs. Irrelevant News" - 10th Jul 20
Prepare for the global impact of US COVID-19 resurgence - 10th Jul 20
Golds quick price move increases the odds of a correction - 10th Jul 20
Declaring Your Independence from Currency Debasement - 10th Jul 20
Tech Stocks Trending Towards the Quantum AI EXPLOSION! - 9th Jul 20
Gold and Silver Seasonal Trend Analysis - 9th Jul 20
Facebook and IBM Tech Stocks for Machine Learning Mega-Trend Investing 2020 - 9th Jul 20
LandRover Discovery Sport Service Blues, How Long Before Oil Change is Actually Due? - 9th Jul 20
Following the Gold Stock Leaders as the Fed Prints - 9th Jul 20
Gold RESET Breakout on 10 Reasons - 9th Jul 20
Fintech facilitating huge growth in online gambling - 9th Jul 20
Online Creative Software Development Service Conceptual Approach - 9th Jul 20
Coronavirus Pandemic UK and US Second Waves, and the Influenza Doomsday Scenario - 8th Jul 20
States “On the Cusp of Losing Control” and the Impact on the Economy - 8th Jul 20
Gold During Covid-19 Pandemic and Beyond - 8th Jul 20
UK Holidays 2020 - Driving on Cornwall's Narrow Roads to Bude Caravan Holiday Resort - 8th Jul 20
Five Reasons Covid Will Change SEO - 8th Jul 20
What Makes Internet Packages Different? - 8th Jul 20
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Hedge Funds Crash Halifax, HBOS Rescued by Lloyds TSB

Companies / Credit Crisis 2008 Sep 17, 2008 - 12:55 PM GMT

By: Nadeem_Walayat

Companies Diamond Rated - Best Financial Markets Analysis ArticleHedge funds over the last 3 days have been in relentless pursuit of Britain's biggest mortgage bank, Halifax Bank of Scotland (HBOS) as the next bank to be pushed over the credit crisis and housing bear market cliff, amidst an atmosphere of global defaults in the wake of Lehman's collapse on Sunday. In emergency action both sanctioned and sponsored by the Bank of England saw Lloyds TSB step in to buy the Bank before the Government was forced to step in and rescue the bank much as happened following the Northern Rock bust in September 2007. Only at that time the Bank of England in a huge unforgivable blunder that destroyed much of the central banks credibility, PREVENTED Lloyds TSB from taking over Northern Rock.


HBOS Shares had crashed on today's opening to as little as 90p, that's a fall of more than 66% in just 3days! as the Hedge Fund sharks smelled and tasted blood.

Chart - Bigcharts.com

The Hedge fund speculators first targeted HBOS, 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 on Monday, "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 article Hedge Funds Target Halifax, HBOS as Shares Crash 30% illustrated how hedge funds were specifically targeting HBOS early Monday, a near 24 hours before the mainstream media awoke to the significance of unfolding events.

The near collapse of HBOS is a seismic event for the UK financial system and British economy as virtually 1 in 3 adult Brit's are HBOS customers which brings home the credit crisis right into their every day lives like no other event so far has. The bid by TSB (mistakenly referred to in the media as a merger) prevents a complete meltdown that would have occurred had events continued that would have witnessed a run on the bank, not by small investors but by other banks calling in their loans pf millions of pounds to HBOS, for that would have resulted in the same outcome.

The combined bank will be a giant in the British retail sector with more than 22 million customers and controlling approximately 30% of the UK mortgage market. Under normal circumstances the authorities would prevent such a merger due to competition concerns, however these have not been normal times since August 2007, when the credit crisis first broke as the interbank money market froze. The bank was worth a mere £6 billion during today's morning which is a far cry from the £70 billion barely a year ago. Lloyds TSB itself has suffered a substantial loss of value which now puts the combined banks value at £30 billion.

The biggest immediate losers are the shareholders with the expectation that Lloyds TSB will pay a rock bottom price for the bank which last traded at just £1.40 a share.

Implications for the Global Financial System

How many could have imagined a year ago that the Halifax would be brought to its knees, literally hours away from being tipped over the edge into nationalisation, the answer is NO ONE!. Today's HBOS near collapse is but just another card in the crumbling house of financial cards as we are literally witnessing a global financial meltdown as capital devastated banks now teeter and one by one get pushed over the edge of the credit crisis cliff. As each bank fails it sends out a ripple of defaults across the global financial system. Like a chain reaction in a nuclear reactor in meltdown. Lehman's collapse, closely followed by the nationalisation of the worlds biggest insurance company AIG, does appear to be literally exploding right before as the financial markets are now clearly in the grip of systemic distrust, where financial institutions are unwilling to transact business with one another for fear of counter party default. This implies a flight to safety to traditional safe havens such as gold and the other precious metals as well as short-end Treasury bonds.

Stock holders the world over are wondering which way will their capital be destroyed ? Will it be through bankruptcy or through nationalisation? In such a climate all stocks get dumped, after all if the likes of Lehman, AIG and now HBOS can be toppled then there literally is no safe stock to hold!, hence shares are again today being dumped as elaborated on in the analysis of 9th September - BANKRUPT Banks Wiped Out by Tulip Backed Securities.

Implications for UK Stock and Futures Markets

This may prove to be the straw that broke the camels back, and the UK government may follow the United States earlier decision to highly regulate short selling in key financial stocks. The aim of which is not to prevent long-term trends, but to give a company breathing space to investigate options such as a takeover or re-financing which is much more difficult to do in the face of relentless short selling. Whether the government takes action on this depends on how much profits the hedge funds have made on the HBOS collapse which will become apparent in the coming months. As mentioned earlier, the treasury and FSA had voiced concerns in March when HBOS was first targeted, but to date nothing has emerged with regards short-selling regulation.

My view - Under the current credit crisis circumstances, the UK government should follow the US example as it will have the effect of decreasing pressure on distressed banks, giving the banks officers valuable days if not weeks for a better more favorable outcome, than shot gun weddings amidst blind panic meltdowns.

Implications for Savers

As I stated on the 15th September specifically with regards HBOS, that small savers have little to fear as the government would not allow any loss to small HBOS savers under any circumstances for fear of igniting a run on the bank. However the rules of the game for savers remain as follows -

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 such as HBOS 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 HBOS and an Investment bank such as Lehman Brothers, therefore ensure that they definitely do limit exposure to non retail banks to £35,000.

Implications for Mortgage Holders

Whilst the bank has not been nationalised, however the outcome will be similar in that Lloyds TSB will be looking to reduce its exposure to the UK housing market so as to concentrate on the core profitable arms of the bank. Therefore the expectations are for HBOS mortgage interest rates to rise significantly as the bank seeks to push mortgage holders to remortgage into the arms of other mortgage banks and therefore reduce its risks of default further down the line as the UK housing bear market enters its second year.

Implications for HBOS Staff

HBOS staff should be under no illusion, this is NOT a merger it is a TAKEOVER of a greatly weakened bank by Lloyds TSB. Therefore HBOS jobs are at serious and near imminent risk as the HBOS mortgage book contracts so will the need for the vast branch network, therefore the expectations are for huge job losses amongst the banks 72,000 workforce which is more than 12 times that of Northern Rocks original workforce of 6,000 that has subsequently shrunk to less than 4,000 or a loss of over 33%. In actual fact the expectations are that over the next 12 months the HBOS workforce will fall by a much larger degree, probably in the region of 50%.

Implications for the UK Housing Market

HBOS is the corner stone of the UK housing market, for the bank to be under such distress is a clear sign that the UK housing market crash of Summer 2008 is set to continue for the rest of the year. My existing trend forecast for a fall of 15% over 2 years as of August 2007 has been exceeded by a significant degree as a consequence of which an update is now pending to cover the UK housing market trend for the next 2 years in the face of global deleveraging of asset prices as bankrupt banks are forced to liquidate assets and the deep ensuing economic recession.

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.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules