The HBOS crisis – what was it all about?
April 10, 2008
Just before the Easter break there was chaos in the stock markets in the UK, with HBOS dominating the headlines following rumours that it was on the brink of collapse. However, it emerged that what had actually happened was an alarming scam involving rumours started by unscrupulous stock brokers determine to make a profit on the stock market no matter what it takes.
Since the fiasco the Financial Services Authority, the UK’s financial watchdog, has announced that it will be seeking out those responsible for the scam and will be taking criminal action. It is reputed that one broker involved made £100,000 from the incident, and the situation reached a point where the Bank of England had to make an unprecedented move and contact news companies in order to assure them that the rumours were all lies.
It all began early in the morning when rumours started to circulate claiming that HBOS, which owns the Halifax, was on the verge of collapse. It was rumoured that the bank had approached the Bank of England for an emergency loan, and that staff members from the Bank of England – including the governor, Mervyn King – had been told that they could not take leave over the Easter period because a major bank was in crisis. With the Northern Rock crisis still fresh in people’s minds it did not take long for the rumours to take hold, and share prices in HBOS plummeted.
When the rumours began officials from HBOS intervened stating: ‘They are deeply destabilising for the whole UK financial services system. HBOS has an exceptionally strong balance sheet with access to a deep pool of retail deposits.’ One official hit the nail on the head amidst the chaos that spread quickly throughout the stock markets, stating: ‘What is terrifying for financial markets is the power of market rumour.’
The Financial Services Authority plans to step in and put an end to what it has described as abuse of the stock market, with one FSA official stating: ‘There has been a series of completely unfounded rumours about UK financial institutions in the London market over the last few days. 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.’
HBOS officials have also stated: ‘There is not a shred of substance whatsoever to these malicious and unfounded rumours that have been in the markets today. We are deeply concerned about the impact these rumours are having on the UK banking system.’
The credit crunch has had a deep impact on the financial markets, and with the crisis that faced Northern Rock last year, many are quick to believe that even major banks could be on the brink of a similar crisis, which is how these unscrupulous brokers are managing to manipulate the stock market in order to make some quick – and substantial – cash through what has been described as malicious rumours.
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