eFinancialCareers

Rogue traders and vagabonds yesterday looked to profit by spreading vicious lies about Scotland’s own HBOS. But are things that rosy north of the border?

After rumours circulated yesterday about a “liquidity crisis” at Britain’s biggest mortgage lender and Scotland’s second largest bank, HBOS, its share price plummeted by nearly 17%, to a record low of 398p. This wiped £3bn off its market value in one foul swoop.

It turned out it was in fact scurrilous members of the trading community releasing false information to profit from a stock slump by snapping them up at below fair value prices. The Bank of England took the unprecedented step of denying the allegations, and HBOS says it has an “exceptionally strong balance sheet”.

Rogue traders looking to profit through immoral means in the midst of a market crisis – it just seems so 1980s, so ‘greed-is-good’, so Liar’s Poker, so Charlie Sheen in shoulder pads…

Though claims of a “crisis” might be exaggerated, it’s not going to be plain sailing at HBOS, according to Alex Potter, an analyst at stockbroker Collins Stewart.

“We believe its exposure to the UK consumer, its level of exposures to 'toxic' debt investments, gearing to private-equity gains within revenues and potential impact from rising wholesale funding costs mean the bank will underperform the UK banks sector on a 12-month view,” he told The Scotsman.

Understandably, both HBOS and the Financial Services Authority have called for the rumour-spreading traders to be brought to book.

Ironically, a lack of liquidity was said to be something that will plague Royal Bank of Scotland after the merger with ABN AMRO. But further problems also haunt the bank.

Yesterday, a Credit Suisse analyst, Jonathan Pierce, told the FT that RBS’s portfolio of beleaguered mortgage-backed securities has more than doubled to the “somewhat staggering figure” of £68.3bn because of the ABN AMRO purchase. And Pierce says another £700m fair-value adjustment on credit portfolios is likely.

Analysts tell us that as the various desks and functions consolidate through the merger, there’s likely to be a headcount “bloodbath” at RBS in the latter part of the year.

Not a good week for Scottish banks then, but one that could have been a whole lot worse…