Shares in HBOS dive following suspicious trading

Yesterday, The Bank of England had to issue an unprecedented denial that, one of the ‘Big Five’ High Street banks, Halifax Bank of Scotland (HBOS) was in crisis.

The panic continues in the financial markets following the collapse of US investment bank Bear Stearns at the weekend and Newcastle-based Northern Rock.

The Financial Services Authority (FSA) commenced an investigation yesterday afternoon into the possibility of suspicious trading. In early trading yesterday, shares in HBOS plummeted as some traders launch a sudden raid on the stock. At the same time rumours about HBOS’s solvency and demands for funding from the Bank of England were filtering through the market.

Market spectators said it was unprecedented in recent history for the Bank of England to be forced to issue a denial that a major high street bank was in difficulties. The Bank denied that any bank had asked it for emergency funding or asked for a meeting with it.

Sally Dewar, head of the FSA’s wholesale markets, said there has been a series of completely unfounded rumours about UK financial institutions in the London market over the last few days.

We will not tolerate market participants taking advantage of the current market conditions to commit abuse by spreading false rumours and dealing on the back of them, added Ms Dewar.

HBOS has more private shareholders than any other company in Britain. Its 2.1 million small shareholders are nearly all customers of the bank. Halifax is Britain’s biggest mortgage lender with outstanding loans of £430 billion.

A spokesperson for HBOS said the rumours were ‘completely malicious’ and added HBOS has an exceptionally strong balance sheet with access to a deep pool of retail deposits.

Since the collapse of Bear Stearns, analysts say Britain’s major banks are also at risk.

Discuss this in the Finance Markets forums

Story link: Shares in HBOS dive following suspicious trading