HBOS shares plummet nearly 50% amid Wall Street chaos

| September 16, 2008 | 0 Comments

Shares in Halifax banking group, HBOS, lost 30% at one point today, following its fall of 18% yesterday.

Banking stocks throughout the world are falling as the turmoil continues on Wall Street due to the collapse of Lehman Brothers yesterday, and fears of the future of insurance giant, AIG.

In a second day of panic selling, the FTSE 100 index of leading shares today fell below 5,000 for the first time in three years.

In a bid to allay fears in the UK markets, the Bank of England has injected an extra £20 billion into the short-term money markets to protect against fears that financial markets will come to a standstill should other banks be weary of the misfortune of Lehman.

HBOS, which also owns Bank of Scotland, had its credit rating lowered by Standard & Poor’s, who said the bank’s credit risk was greater than some of its competitors due to high loan-to-value and specialist mortgages making up a sizeable part of its mortgage book.

In response, HBOS said it had the strongest capital ratio of all the major UK domestic banks.

HBOS was not the only one to experience sharp falls after shares in Royal Bank of Scotland closed down 10.2% at 189.1p, while Barclays performed a little better closing down 2.53% at 308p. The latter has confirmed its interest in a possible acquisition of certain Lehman Brothers assets.

Meanwhile, Libor, the rate at which banks lend to each other, has risen sharply since the demise of Lehman Brothers, indicating that banks are losing confidence in each other.

Overnight sterling Libor increased from 5.5% to 6.8%, and the dollar Libor rate rose from 3.1% to 6.4%.

HBOS was created following the merger of the Halifax and Bank of Scotland in September 2001.

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