HBOS shares plummet as credit rating downgraded

by Gill Montia

Story link: HBOS shares plummet as credit rating downgraded

While banking shares plummeted worldwide on the news of Lehman Brothers’ bankruptcy, HBOS, which owns the UK’s largest mortgage lender, Halifax, has lost around 50% of its value in the past two days.

Shares in the bank hit a record low of 138.9p today, after losing 18% of their value yesterday.

Credit rating agency Standard & Poor’s has downgraded HBOS’s long and short-term credit ratings which will result in a sharp rise in the cost of insuring its debt and will also make it more expensive for the bank to borrow on the money markets.

According to a report in The Times, HBOS is due to refinance £120 billion worth of debt within the next three months.

Meanwhile, Libor, the rate at which banks lend to one anther, has already seen sharp rises in the fallout from Lehman Brothers’ demise, and the news that US insurer, American International Group Inc, needs to raise $75 billion in loans as a matter or urgency.

The rise in Libor signals that banks are nervous of lending to one another and the Bank of England today added £20 billion to yesterday’s cash injection of £5 billion, to try and ease the panic.