Morning:
6°c
One of Damilola Taylor's killers was back behind bars today - only 16 days after being released from jail. Ricky Preddie (pictured left) was recalled to prison last night after breaching the terms of his parole
More...
Bank pumps another £5billion into money markets as financial jitters after HBOS scandal fail to ease
Last updated at 02:37am on 21.03.08The Bank of England today pumped another £5 billion into money markets in a bid to avert a new, devastating twist to the credit crunch which has already taken a severe toll on shares.
Just four days after a first £5 billion cash injection, the Bank doubled the weekly funding made available to lenders to £10.03 billion.
In a sign of the banks' growing difficulty to secure funding in wholesale markets, the money auction was nearly three times over-subscribed.
The move came after the FTSE again failed to settle, plunging almost 60 points shortly after opening and plummeting still further after lunch to be down 82.5 at 5463.1.
Scroll down for more...
Standing firm: But earlier wobbles throughout the City were caused by 'short sellers'
Investors remained jittery after rogue City traders yesterday made hundreds of millions of pounds amid a swirl of rumours about Britain's biggest mortgage lender.
Halifax Bank of Scotland (HBOS), which was at the centre of yesterday's financial storm, made tentative gains as bosses attempted to quash the rumours and ease investor nerves.
But a profit warning from investment bank Credit Suisse did little to help fragile sentiment, as did heavy overnight falls on Wall Street which saw the Dow Jones close down almost 300 points.
Global markets were also volatile, with the Hang Seng index in Hong Kong closing down 758.7 points at 21108.2 while the Straits Times index in Singapore was down 8.3 points to 2824.9.
Following the latest cash injection, experts immediately claimed it might not be enough to stave off even worse volatility.
Investec economist Philip Shaw said: "Given that overnight rates have generally remained above the Bank rate since Monday, the level of extra liquidity is a little disappointing."
Bank of England governor Mervyn King is now likely to face demands for yet more funding to be released in a meeting with banking chiefs later today.
The extraordinary events surrounding HBOS shares yesterday is also sure to feature on the agenda.
Its share price dropped as much as 20 per cent at one point yesterday after speculators began spreading malicious, false rumours about the bank's imminent implosion.
A single trader may have made £100 million from the collapse, which has been dubbed a "modern day bank robbery" and is being investigated by the Financial Services Authority (FSA).
The drama started to unfold at 8.31 when shares in HBOS began to wobble. What followed was one of the most remarkable morning's trading in recent stock market history.
• 8.33am: HBOS shares plunge 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 start to sweep through the market.
• 8.51: HBOS's shares plunge to 400 ¼ p and the FTSE100 dives to 5570.
• 9.02: HBOS denies the rumours. A spokesman says it has an " exceptionally sound" balance sheet.
• 10.15: Bank of England press officers phone news organisations including the Evening Standard to kill off rumours of crisis meetings and HBOS cash shortfalls. HBOS shares start to recover.
• 12.30: Financial Services Authority says it is investigating suspicious trading in UK financial shares.
Scroll down for more...
City traders in London yesterday battle to man the phones
Britain's financial watchdog immediately launched a criminal investigation into the traders, who collectively helped to wipe more than £3billion off the bank's value.
The FSA warned them to stop exploiting jittery market conditions. The rumour-mongering is now known to have fuelled the extreme market turbulence of the last few days.
It also emerged today that a leading City investment bank has uncovered a £1.4 billion scam by rogue traders desperately trying to protect their bonuses.
Credit Suisse discovered the problem last month but today is the first time it has revealed that traders had cooked the books.
The collapse of HBOS, which has more than two million small shareholders, would be an almost unimaginably enormous financial disaster, hence the share price crash when the City was swamped with wild rumours that it was on the brink of disaster yesterday.
Between 8.30am and 8.45am yesterday, its shares slumped more than 17 per cent, from £4.80 to £3.98.
There were many different rumours all pointing to the fact that HBOS could be the next name on the list of credit crunch casualties.
One was that the Bank of England governor, Mervyn King, had cancelled a trip to Asia because of the banking crisis. In fact, he had cancelled a visit to West Bromwich on Tuesday.
There were claims that an email had circulated in the City falsely alleging that a newspaper was to run an article today on HBOS which "will raise the spectre of a run on the bank."
The email also incorrectly claimed that HBOS sought to hold emergency talks with the Bank of England over the Easter weekend to avert imminent disaster.
Scroll down for more...
Traders in New York last night watch share prices rebound in the wake of the Fed's decision to cut its rates
The Bank of England was forced to issue a statement insisting that there was no reason to panic and that it had not given emergency help to the bank.
HBOS added to the condemnation heaped on the traders who caused the disastrous plunge in its share price.
A senior HBOS executive said: "This is the modern day version of bank robbery."
The bank insisted that it is "one of the strongest financial institutions in the world" with a balance sheet of £660billion.
A spokesman said: "There is not a shred of substance whatsoever to these malicious and unfounded rumours that have been in the markets today.
Scroll down for more...
"We are deeply concerned about the impact these rumours are having on the UK banking system."
Investigators now face a hugely difficult task of attempting to trace the source of the rumours by trawling through phone records, emails and internet message boards.
If found guilty of "market abuse", traders face up to seven years in jail and an unlimited fine.
By illegally spreading detrimental rumours about a company, unscrupulous City traders, hedge funds and other speculative investors hope to make the share price fall - and net themselves a fortune.
Using complicated financial instruments, they borrow the shares, sell them at a high price and then buy them back at a lower price.
Over the last few months, the rumour mill is also thought to have targeted Bradford&Bingley, Alliance&Leicester and Lloyds TSB.
Sally Dewar of the FSA said: "There has been a series of completely unfounded rumours about UK financial institutions in the London market, sometimes accompanied by short-selling.
"We will not tolerate market participants taking advantage of the market conditions to commit abuse by spreading false rumours and dealing on the back of them."
It is not just HBOS which has been caught up in the market meltdown this week, partly fuelled by the army of "short sellers".
On Monday, nearly £13billion was wiped off the market value of Britain's high-street banks.
At the time, it appeared the fall was linked to concerns about the health of the economy after the implosion of America's fifth-largest investment bank, Bear Stearns. But after yesterday's developments it appears it is also being caused by "short sellers".
While the FSA said its investigation will focus on rumours spread in the last few days, it is widely believed that market abuse in this manner has been going on for years but the authorities have failed to stamp it out.
By the end of the day, HBOS shares had recovered slightly but still closed down more than seven per cent at £4.46 and a quarter, the lowest level since February 2000.
Last night Wall Street fell 293 points, or 2.36 per cent, to 12,099, erasing much of the previous day's gain of 420 points in another rollercoaster day.
Reader views (30)
With the Bank of England pumping in yet another £5 billion with probably even more next week, ALL the City Folk will be well positioned to achieve MASSIVE bonuses! WELL DONE! And who said money couldn't be made in a falling market?!
Perhaps a "depression" really is just around the corner for ordinary folk?
- Fraser, Telford Park, 21/03/2008 02:10
Report abuse
Worldwide depression coming soon, after decades of lies with the USA playing the lead role.
- Sher, USA, 21/03/2008 00:18
Report abuse
Graham, West Sussex, Bank of Scotland bought Halifax, not the other way around.
- Bob, London, 20/03/2008 23:45
Report abuse
This is the best possible news. Roll on the meltdown!
- David C, London, 20/03/2008 22:06
Report abuse
I have just returned from the USA and seen numerous shopping malls etc. bereft of customers.
Someone financed these enterprises, so, could this be the next victim of the economic down-turn?
- M.De Ruyter, St.Albans, UK, 20/03/2008 18:11
Report abuse
Guys hate to burst your bubble and disappoint you all but this isn't a national crisis it is an international crisis. It first came to light with the sub prime market collapse in America which has affected the UK and the Far Eastern markets. Now unless I'm missing something neither Gordon Brown nor New Labour actually had any major influence on the strategy followed by the banks in the US market. So perhaps you may want to reassess your finger pointing.
- Turbut, London, UK, 20/03/2008 17:04
Report abuse
I haven't got a clue about money markets but its a lovely picture of my fiance!
- Amy, London, 20/03/2008 16:45
Report abuse
The country is clearly now in recession. It's time we faced this ugly truth.
Perhaps the Government would like to take the lead and say something constructive--other than aggravating the situation by making stupid reassuring noises about "weathering the storm".
- William Grierson, Kimpton, UK, 20/03/2008 16:18
Report abuse
This crisis may only be worsening because the bank of England is baling out banks that have loaned/borrowed unwisely and have been complicit in allowing individual borrowers to over-stretch themselves. We are throwing good money after bad. The Government and its much vaunted tripartite fiscal control structure has failed us miserably. It amazes me to read some contributions laying all of this at the door of Margaret Thatcher. How delusional can you get? This is a New Labour crisis created by them and running out of control thanks to their inefficiency.
- James Elliott, Eastbourne UK, 20/03/2008 15:35
Report abuse
This story is misleading at best. The BoE is making money available, but over the last couple of days at least no one has needed to borrow any of it.
- Paul, London, UK, 20/03/2008 14:56
Report abuse
"Markets are driven by greed and fear". The run HBOS's stock was driven by market rumour according to the Watch dog who implied that it was connived by some of the trading community to take advantage of the greed and fear factor. This is not difficult to do in the present market atmosphere with it is erstwhile volatility as no trader wants to be caught on the wrong side in a falling or rising market. The FSA has plenty of powers to stamp out irregularities and it should do so. All trading calls are recorded vocally and by time so the audit trail should be in place and the cause of the run on the shares should be easily and very quickly traceable . Let us see how effective our regulators are.
- Alexis Dogilewski, London, England, 20/03/2008 13:34
Report abuse
What has this trade done that is illegal. Rumours are started every day of the week. There was a rumour going round our office that I was in the broom cupboard with the cleaning lady (it was the tea-lady), totally unfounded of course. The trader(s) have just done what the City does, trading on other peoples stupidity or ignorance or fear. That's it.
- Frederick, London UK, 20/03/2008 13:27
Report abuse
The markets behave like a car with no shock absorbers.
In bumpy conditions the suspension (prices) resonate.
This now seems to be made worse by the input of forced vibration.
Remedy:-
Fit shock absorbers.
Must own before you can sell ("Minium Period" of ownership) variable by market management according to conditions".
"Delay Period" for transactions. Sellers will give firm instructions to sell at the going rate at end of "Delay Period". Buyers put up cash or guarantee and get the shares that this sum will buy at end of "Delay Period".
That means that "Market Manipulators" will be faced with
Delay Period + Minimum Period + Delay Period.
The total time is still very short compared with the time required to start a productive business.
The market is not a casino --- or is it?
- John Campbell, Thurso U.K., 20/03/2008 10:12
Report abuse
Having lost the majority of our manufacturing base and related trading in real products over the past 50 years there has been increasing over reliance on playing the financial markets, (long term effects of Thatcherism). This process has spawned unwarranted greed amongst those at the heart of financial trading with many, as recent events prove, quite prepared to break others financially just to gain an extra notch (measured in vast sums) in their own already vast personal fortunes. If the FSA is able to find the culprits (unlikely) then no currently legal punishment would be sufficient recompense for the financial ruin that some will suffer as a result of trading of this kind; these financial charlatans lack any morals and it is time for the government to show that it does value morality and to make sure that financial regulation is exactly that and not a pawn to an iniquitous process.
- Adam, Plymouth, UK, 20/03/2008 08:49
Report abuse
Isn't it amazing what political correctness the predominantly Scots led Labour party will use these days.
The Bank of Scotland was brought out by the English Halifax bank, and instead of it ceasing to exist, the Halifax are forced to claim that they 'merged' with the Bank of Scotland.
When are Scots going to admit that their country is in such a mess that they are selling their albeit limited assets back to the English?
- Graham, West Sussex, 20/03/2008 08:27
Report abuse
It seems by the revelation of a practice by rogue trader or traders that some of the recent happenings in financial markets have been manufactured, which has had, I hope, a temporary "devaluation" of the pound. This, of course, hits the expat very seriously. And there is no relief for them. It will be hard to trace the traders responsible, but when and if you do, he/she or they should be made to sweep the streets of the square mile and then be incarcerated!
- Arthur Lincoln, UK, 20/03/2008 08:09
Report abuse
Chuck the person in high security jail if found guilty, bankrupt them to recover as much as possible of the 100m. Just because it's a smart (not really my friend you are likely to be in a cell with a crack addict) crime, doesn't mean it is victimless. Sell or all their 50% of their assets (if in marriage or relationship) or 100% if not, compensate the people who lost , and for once apply the law equally (and in this rant I mean up the sentences for serial offenders, and strip the rich of their assets up to the value of their crime) not just low level penalties on the working (oops I mean middle class - we are all middle class remember) as a tax substitute.
- Andy, South East, UK, 20/03/2008 01:32
Report abuse
What the really sad thing to come out of all this is that trust has been wrecked. Wrecked because a feckless few have tried at the cost of many, many more than can be counted, in the name of profit. What a truly sad indictment on the world we live in. This isn't a debate about whether a major high street bank might be on it's downers, its more about the scruples of a few, who sadly have had more of an impact on the course of current affairs, then they ought to have.
- Damian, leeds, 19/03/2008 21:52
Report abuse
Another nice Nu Labor mess. They should go away and leave the economic (mess!) as usual to the professionals from the Tories to sort it out. Northern Rock was the first one but with Crash Gordon around there seem to be more and more disasters...
- Jacqueline, Hampstead, London, 19/03/2008 19:09
Report abuse
The problem is - who do you believe? CEO of Bear Stearns stated exactly the same early last week - 'We have sufficient liquidity, we're in an excellent position'. Three days later, they go under! When the whole system becomes disingenuous, including the government and the FSA (they were with NR!), you simply don't know who to believe. Take your choice and pay the price!
- Rob, Isle of Wight, 19/03/2008 17:55
Report abuse
I wouldn't trust HBOS especially with its lending arm The Money Works which has been pumping out thousands of unsustainable mortgages for years. It is going to catch up with them eventually.
They have had years of loose and irresponsible lending, fuelling unsustainable house prices. It looks like it is payback time.
- Gavin, London, 19/03/2008 16:43
Report abuse
....and to think our future and livelihoods are in the hands of these charlatans. This is no way to run a modern economy.
- Nick, London, 19/03/2008 15:59
Report abuse
I think you will find to your total amazement, that the reason that Post Offices are closing is the fault of the Lisbon Treaty, which bans government support of the 'Post Office' franchise - hence all the closures! Yet another Euro nail in the UK coffin - but wait till the full weight of this soul-selling document hits the Great British Public - the English way of life is consigned to the dustbin I am afraid!
- Gary Parker, Amersham, 19/03/2008 15:24
Report abuse
The spivs shorting HBOS can easily be identified. All trades must be identified and dealing tapes etc hauled out. This is blatant market abuse and the FSA needs to pull its finger out and send this lot to jail.
- James, New Malden, Surrey, 19/03/2008 14:13
Report abuse
PLUS, Mr Brown sold out the sovereignty of this country in the Lisbon Treaty (E.U. Constitution). Don't forget that one! PLUS, if he gets his way, many of our post offices will disappear! Don't forget that one either. This man has an incredible amount to answer for, apart from his dismal management of the economy for the past decade.
- Phil Jones, London UK, 19/03/2008 13:46
Report abuse
Buy on the rumour sell on the news. Someone has pulled a clever scam and made a pile. Should be easy to find out who.
- Frederick, London UK, 19/03/2008 13:38
Report abuse
All these pictures of traders in "open cry" trading pits were surely taken many years ago? Open trading hasn't existed in any of the world's major financial centres since the end of the 90s.
- Mcw, London, 19/03/2008 13:25
Report abuse
Has a "recession" arrived or are we heading for a "depression"?
- Fraser, Telford Park, 19/03/2008 13:04
Report abuse
those 130% mortgages are looking a bit silly and scary now aren't they? The time is ripe for renting.
- Daveb, london, 19/03/2008 13:01
Report abuse
And Gordon Brown today urged Britain not to lose faith in his Government in the face of a looming economic crisis - we lost it long before this latest scenario Mr Brown. We judge your government on its failures and not its empty promises and the list is quite long. The final nail in your coffin is how much money I have left in my pocket and there is less left than there was in 1997.
- Stuart, London, UK, 19/03/2008 11:59
Report abuse
