FSA warns on market rumours as HBOS shares plunge

by Gill Montia

Story link: FSA warns on market rumours as HBOS shares plunge

Rumours that HBOS has liquidity problems has led to an investigation by the Financial Services Authority (FSA), which will be looking at the possibility of market abuse, after the bank’s shares fell heavily today.

It is possible that the speculation, which included suggestions that the Bank of England is arranging an emergency meeting with HBOS, emanated from so called short-sellers, who are not regular investors but make their money on shares that fall in value.

The FSA has warned: “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.”

Adding: “We remind market participants of the need to take extra care, in this market climate, to adhere to the market code of conduct.”

Meanwhile, a spokeswoman at the Bank of England has confirmed: “No meetings have taken place or been scheduled to take place.”

Shares in HBOS fell up to 18% today, with speculation over the bank’s balance sheet enhanced by its decision to raise £750 million in new capital at the end of last week.

The amount was borrowed at an interest rate of almost 9.5%, which is around 3.50% higher than the rates many of its mortgage customers are currently paying.

Concerns over the funding of British banks have generally been heightened by the strong response to the Bank of England’s offer of emergency funding.

The central bank auctioned £5 billion at the beginning of this week while banks sought to borrow well over £23 billion.