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New bank crisis at troubled HBOS
Jonathan Prynn, Consumer Affairs Editor17 Sep 2008
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Britain's biggest mortgage lender was tonight at the centre of a new banking crisis as a crash in its shares forced it to issue an emergency statement.
Shares in HBOS, owner of the Halifax, fell by a third at one stage on fears that it could be the next major bank to run out of money following the collapse of Lehman Brothers.
The day after the biggest meltdown on Wall Street since the 1929 Crash, the FTSE-100 fell below 5000, its lowest level for three years, before recovering slightly.
The British economy was under siege after a series of other blows including inflation hitting a worse than expected 4.7 per cent last month with food prices rising at a 28-year high rate of 14.5 per cent in a year.
On another day of high drama in the City, HBOS rushed out a statement to the Stock Exchange to stop the two-day slide, which has wiped £6billion from its value. The statement said: "HBOS notes the current volatility in bank share prices following developments in the United States. HBOS has a strong capital base and continues to fund very satisfactorily."
It came as trading in AIG, the world's largest insurer, was briefly suspended on the New York Stock Exchange after a massive fall. Shares recovered sharply on reports that a bail-out was likely tonight.
In a further dramatic development, UBS, Europe's biggest bank, was also forced to issue an emergency statement telling investors it did not expect its total losses caused by the collapse of Lehman to exceed $300 million.
The turmoil continued despite a huge injection of cash into the world's financial system by central banks. In total, the Federal Reserve, the European Central Bank and the Bank of England pumped £102 billion into the markets.
In London, all eyes were on HBOS, which suffered a second day's mauling from speculators. HBOS, which also owns Bank of Scotland, saw its shares drop another 33 per cent at one stage today after yesterday's 18 per cent drop.
Before the stock market closed the shares recovered slightly on the emergency statement but only to 168.3p - a fall of 64.2p or 28 per cent. The £ 6billion losses at HBOS meant it was worth just £8.5 billion.
In the money markets the interest rate which the European banks charge each other to borrow money overnight soared to their highest levels for eight years. In effect, London-based banks virtually refused to lend each other dollars today. One worried trader said: "European banks just can't get hold of dollars. Banks are hoarding cash in case of payment issues."
Bankers said that banks were refusing to let go of any dollars which they were holding in case they were suddenly called upon to settle outstanding trading potions with Lehman Brothers.
That meant that the borrowing rate, or London Interbank Overnight rate, which is set officially in London around lunchtime for the dollar more than doubled from 3.1 per cent to 6.43 per cent.
That is more than three times the official US interest rate of two per cent and is the highest the interbank rate has been since April 2001.
Traders also said that HBOS could be the victim of short-selling by unscrupulous stock market traders for the second time this year.
In March HBOS shares sank by more than 20 per cent on one day and the Bank of England took the highly unusual step of issuing a public statement denying rumours that it had cancelled staff holidays over Easter and was holding emergency funding meetings with the bank.
City regulator the Financial Services Authority launched a major probe into the share slide and short-selling and said it would not tolerate such market abuse. But it never found the guilty parties and no one was prosecuted. Today an HBOS spokesman said: "HBOS is strong bank. We have significant capital resources and the largest deposit base of any bank in the country."
Reader views (9)
Funny how the focus is on "unscrupulous traders" taking advantage of short term volatility and not for example, CEOs of certain companies who raised billions from shareholders and, once having banked the cash, advised the same shareholders that conditions would get much worse !
Clearly the CEOs are upstanding models of society whose example we should all follow ?
- John Bloomfield, Twickenham, 17/09/2008 08:06
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Sarah Edwards - in response to your comment about an investigation into collusion between oil companies: Unfortunately, that is impossible as they are unique (except for drug dealers) in that they are a CARTEL ie. they make their OWN rules and set their OWN agenda to suit their goals. OPEC is another obstacle as this is primarily concerned with the interests of producing nations NOT consuming nations - in other words keep the price as high as possible and maximise profits for them. They have no regard for the free market system or market forces - they set the trend.
- Liam Patey, Birmingham England, 17/09/2008 02:14
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HBoS are suffering a deserved kicking. Their lending policies have been shameful - they offered us 5 times my salary plus 2times my wife's when we bought our house last year (we only borrowed what I thought we could afford - which was about a third of that). If they were as loose with other people, there are a lot of HBoS borrowers who won't be able to repay now that the u-no-wot has hit the fan.
- David In London, London, 16/09/2008 21:32
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Life is a search for truth but there is no truth - simply evasion, rumour, panic, mischief and downright lies.
Stop the world, I want to get off.
- Ted, Shetland, 16/09/2008 21:05
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suprising just how damaging a drop in confidence can be. the money that was there last week, is still there.
and who will take advantage of this huge drop in shares now?
begs the question??
- Chris Golding, Llanelli West Wales, 16/09/2008 21:04
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Sarah Edwards of London. It's because their greed knows no bounds and the government takes no action.
- Frederick, London, 16/09/2008 14:27
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So much of this crisis is physcological. What in reality has changed? The only thing that has changed is people's perception. Instead of greed the markets are now stalked by fear. The media in part has contributed to this problem. The headlines the day after the collapse of the holiday firm XL was typical. "30 airlines to go bust". If you have headlines and speculation like this is it anyone wonder why everyone feels down. Tomorrow headline may as well be "Bank Share Dive, JP Morgan, Halifax, Lloyds and RBS may go bust". I appreciate that bad news sells however collectively you the media could improve how we collectively percieve events becuase how we feel determines whether we spend money. If we don't spend unemployment will rise.
- Rupert, London, 16/09/2008 13:03
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With the price of crude oil now at $92 why are oil companies charging the same for petrol and diesel as they were when oil was over $140? There is clearly a need for an immediate price cut and investigation into collusion between oil companies.
- Sarah Edwards, London, 16/09/2008 11:45
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There are a number of things going on here, not all of which are bad. Markets are like oil tankers, it takes them a relatively long time to turn around. They go up too far and they go down too far. Bear in mind that most world stock markets are 25% or so off their highs. Oil is off 40% from its high. Their is scope to cut interest rates globally as inflation risks abide as well increasing Government help by way of increasing money market repo terms to stimulate lending.If their are to be casualties in terms of investment banks so be it. Better to have some blood letting,face the problems of excess and move on. We have a situation of financial Rehab and its not a bad thing.
- Michael, Switzerland, 16/09/2008 09:14
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