HBOS becomes victim of malicious rumours

20 March 2008 / by Rebecca Sargent
HBOS, Britain’s fourth largest banking group has fallen victim to what is referred to as a ‘modern day bank robbery’. Shares in HBOS, which owns Halifax, fell by 17 per cent at one point yesterday as a result of malicious rumours.

In the wake of the current credit crisis and turmoil on the stock market, the rumours, which began shortly after 8am yesterday, spread like wildfire. The anonymous rumours included claims that HBOS had sought emergency talks with the Bank of England over the Easter weekend.

It is reported that by 8.50am, shares in HBOS had plunged to a low of £3.98, down 17 per cent on the opening price. The speed at which the shares fell, demonstrates the nervousness of the stock exchange as a result of the recent credit crisis and its consequences on Northern Rock and Bear Stearns.

However, the rumours were soon quashed as the Bank of England was forced to issue an unprecedented denial that HBOS were on the brink of financial disaster. Commenting on the latest financial turmoil, Kevin Mountford from Moneysupermarket.com said:

"HBOS has a very strong business – and rumours that it is on its last legs are ridiculous. Foolish rumours like these could cause panic among savers who should be reassured that HBOS, with its high interest savings and current accounts, is a far better home for your money than under your mattress."

The UK Financial Services Authority (FSA) has launched a criminal investigation to hunt down the bankers who have caused this chaos. It is believed that the malicious rumours were spread by bankers involved in ‘short-selling’.

‘Short-selling’ is a method of profiting from falls in banking shares. Short- sellers borrow shares that are likely to fall in value from an institution and sell them on. They then buy the shares back when their value has fallen, and give them back to the original institution, meaning they have made a profit.

The process of ‘short-selling’ is not illegal, but any attempts at influencing the share prices, is. The process of spreading malicious rumours and cashing in on the victims demise is known as ‘Trash’n’cash’ and in the case of HBOS, succeeded in wiping £3 billion off its value.

In response to these events, Sally Dewar, a managing director at the FSA, warned:

"There has been a series of completely unfounded rumours about UK financial institutions in the London market over the last few days, sometimes accompanied by short-selling. 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.

"We remind market participants of the need to take extra care, in this market climate, to adhere to the market code of conduct."

© Fair Investment Company Ltd