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Richard Griffiths

I have always felt that Northern Rock was the victim of circumstances last September, although it could perhaps have handled the PR situation better at the time.

In contrast, HBOS seems to have emerged unscathed from appearing on the front pages of the national newspapers in connection with the bear raid on its shares last week. Nevertheless, it must have been a very uncomfortable Thursday for Andy Hornby et al, wondering if queues would be forming outside of the Halifax branches. Small mercies that most consumers probably don’t relate HBOS to the Halifax, and that all the branches were in any case closed the next day, Good Friday. Also, quick and commendable action on the part of the directors to buy shares in the company.

I take the Daily Telegraph and the Times at home. This Tuesday’s edition of the Telegraph contained a well-informed view on the HBOS event. Written by Simon Denham, managing director of Capital Spreads, it appeared on the back page of the Business section. To paraphrase Simon’s article:

“Bear raids happen….Curiously, I believe that the seeds of the HBOS crisis were sown a few days earlier than the actual event … One of our bigger clients rang to say they had been offered very good rates by HBOS for short-term funding …. Why was HBOS paying such good rates for short-term funds? If I was thinking this, you can bet your bottom dollar that many more influential people than me were also thinking the same thing. The need to pay over the odds for deposits generally means that you are struggling to get the money unless you pay a premium. The premium required is defined as the perceived risk of lending to that particular institution. A weak borrower will have to pay a much more penal rate than a strong one ….. It does not take a great leap of miscalculation to reach the incorrect conclusion and to start to sell off the stock….On another note, it is curious how unsubstantiated bullish rumours….creating short-term profits for the perpetrators….never seem to raise the ire of either the media or the regulators. The same, but not the same!”

Well said. By the way, why was HBOS paying over the odds for short-term deposits?


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