Monday, 23 June 2008
We have written a few times on the credit crunch impact on the UK financial services industry.
Nick wrote an excellent piece here on how slow the effects can be to feed through into the system. I contributed with a couple of posts a few months ago on the weakness of HBOS in particular. Even IPM picked up on this.
So today's revelation that Hedge Funds have some quite large short positions in the stock is no news really. However the impact is huge. Just last week another bad trading update has seen the shares slide to well below the Rights Issue price. This means it is quite likely there will be a poor take-up. In turn this means the underwriters will have to sell the shares in the market.
HBOS will get the money but the underwriters will potentially lose. Now seeing as they always make money on these deals, effectively for nothing, then this does not cause me (or others) to well up with tears.
However, it does mean more losses for the sector as a whole and the possibility of another big drop in the share price of HBOS. Where will the bottom be? Who knows, but it will leave HBOS very exposed to take-over or worse in future months.
Many journalists and financial players are bored with the credit crisis and are calling a bottom because they want a new angle and a new story or more profits. I think this episode highlights how far we are from that being the case.
NB A further point to make is that the FSA can't even get enough evidence to prove insider trading when it is obvious to everyone what happened; a bad state of affairs. I am never keen on extra regulation - but without it markets cannot operate efficiently. I am glad the FSA made the Hedgies expose their positions, a false start maybe, but signs that at least they are trying something to help investors understand the full picture.
Posted by CityUnslicker