ΒιΆΉΤΌΕΔ

If we were to see mass unemployment in the UK, together with say a further 30% fall in house prices, then I would imagine a bank like HBOS would struggle to be viable without some sort of government help.

Thank goodness someone's talking some sense. Good piece (again).

Pity you couldn't also point out that at times of crisis like this we normaly expect the PM to be more interested in the country than his job.

I seem to remember he saved us from the flood before last (caused by his Gov's lack of investment), saved us from Foot and Mouth (caused by his Gov's lack of investment) .... oh yeh, I get it now.

How about the Chancellor coming out and saying they g'ttee all HBOS retail deposits before the nightmare really does occur? Or does Brown feel that a display of leadership might expose his own lack of it?

Money doesn't vanish, someone's got it somewhere.

The US Govt ploughs $billions into that insurance 'giant' AIT, but where has the money they 'lost' in the first place - gone?

This story of 'injecting capital into failing financial firms is being repeated every day. Someone's got rich over this haven't they? Who are they? Do they belong in prison or is this how capitalism is supposed to work?

Could someone kindly shed some light on this.

A touch superficial Robert. Lets ask some more questions.

If HBOS feels the current situation is an over-reaction why was the Β£4bn rights issue met with a lack of enthusiasm by shareholders? The vast majority of the issue was picked up by the underwriters wasn't it because the share price had bombed so much since the offer?

Have HBOS approached the BoE for funding over the past week as part of the BoE's ongoing support of liquidity in the market? If yes, how much for?

Have they quantified, if any, their exposure to Lehmans?

How have HBOS assured you that they can meet their funding commitments in future months?

They may be too big to fail, but that doesn't negate the impression that shareholders have lost confidence in HBOS management and the company's strategy. If shareholders have lost confidence it's only a small step for depositors to lose confidence too.

Quote from George Soros on the ΒιΆΉΤΌΕΔ last night (before the US Govt rescue package for AIG was announced).

"Saving the system trumps moral hazard. In the end you do whatever it takes to save the system"

btw....does anyone else get the impression that when certain so called 'experts' are wheeled out in front of televison to comment on the latest financial developments.... many seem to mimic the posts from the latest RP blogs (almost word for word in some cases....excepting RP of course). For one moment yesterday, I even thought George Soros was doing it.......until he made the above statement!!!

Just looked at HBOS's share price and it's already jumped up 10%......looks like that they will be OK....for now.

"anoesis wrote:

How about the Chancellor coming out and saying they g'ttee all HBOS retail deposits before the nightmare really does occur? Or does Brown feel that a display of leadership might expose his own lack of it? "

A couple of good reasons. Firstly, if HBOS does go under, they've got around Β£650Bn of liabilities which the government would have to cover. That figure, by the way, is equal to the entire value of government spending for a year. It would cripple the country.

Secondly, it encourages risky behaviour by the banks. If they know that whatever they do, the money's safe, they'll take risks with it and know the taxpayer will bail them out.

Better that a bank should fail than that all banks should be encouraged to take greater risks. 'Pour encourager les autres', as Voltaire put it.

Am sure you're right about HBOS not being allowed to fail, though at the end of the day its easy to see how they will run out of money soon as the downward spiral cycle of stock slump/credit rating downgrade/cost of funding hike kicks in.

Personally, it seems to make sense for the government to step in now and announce its position on guaranteeing desposits, to avoid a run on the bank from depositors that would surely be disastrous. But I doubt it.

I would dearly love someone to explain to me though how a British bank that makes its money from lending to UK homeowners can end up with such a massive exposure to US debt.

A punt? Some bizarre diversification theory? I suspect that the writing is on the wall for HBOS management, but I sincerely hope that Mr Peston is correct about an orderly process of nationalisation.

Ultimately, government bodies such as the FSA are responsible for controlling the capital maintenance of our banks, and if they have failed to do so adequately then it hardly seems appropriate to ship the pain onto depositors who were encouraged to rely on such regulators.

Why have the management of HBOS allowed to get themselves into this position ? The credit crunch has been evolving for over a year. That is plenty of time in which to improve the bank's capitalisation, either through greater deposits (more attractive interest rates for savers) or rolling it's commercial paper further forward.

For the bank to simply to say it's rolling "as usual" is pathetic. Unusual times call for unusual measures.

Share price as I write ... 108p.

They only have themselves to blame.

Forgive my naiivety, but I'm puzzled by the airtime that George Soros is being given on these matters at the moment. Given (a) his perceived authority and (b) his business model, isn't it a rather risky exercise to allow him to make dire predictions on TV? My anxiety is that it creates a self-fulfilling prophecy that benefits him in extremis.

It needs to be made very clear to the short sellers by their colleagues in the City that they are creating a nasty smell that will stick around the City for decades.

Do they want to be tarred with the reputation as being the people who sold Britain short at a critical time?

There are some of us out here in the real economy who don't like the City, who don't like its favoured place in the UK economy, who have been looking for an opportunity to bring the Masters of the Universe down to their true mortal size. This might be it.

All we need is a government with the guts to put the auditors into the City and prosecute for the smallest regulatory infringement.

If the City is unable to behave like the gentlemen they pretend to be then it is time for the rest of us to get to get rough and nasty.

The current HBOS woes seem a little crazy. What actually happens if a company's shares become effectively worthless? Presumably it'd be a good time for HBOS to buy some of them back?

Speculators who short financial institutions are (systemically) worse than terrorists, and should be treated as such.

Am I joking? I really don't know. It's a fine call.

hbos and lloyds are going to merge. I just can't shake the feeling that the short sellers have driven a proper institution into the ground without any care about the underlying fundamentals of the company.

Soddball - I said retail deposits, not all it's liabilities. I am suggesting that a run on the bank is not necessary and c/should be avoided by such a statement.

How long can it take to come up with a depositor g'tee scheme? (Funded by the banks to avoid the moral hazard issue). This government are useless.

Is anyone able to answer the following..

The credit crunch has cause a massive reduction in the money supply as banks are forced to deleverage. On the other hand you have the US Govt β€˜creating’ billions of dollars to enable it to bail out these failing institutions. What is the overall impact of these to adjustments to the money supply?

Dear Robert,
I have just finished reading a book on AL-QEADA, and its invovlement in computors and finacial matters.
The Author realises that there are people who support the Terrorists and are in place of responsiblity to affect the markets in Economic Warfare.
Specialist terrorists have available to them the means to manipulate the markets, where by the Western World is exteremely reliant on Computers, and stock markets and when a bank is targeted, " is it FOR PERSONAL GAIN OR ECONOMIC WARFARE"? especially as America and Britain have been targeted

mmm rang halifax online share dealing service yesterday...there system is down...the trader couldnt/wouldnt give me a time scale when the system would be back up.
Couldnt trade hbos... couldnt sell some of my portfolio...... So as a precautionary measure Im moving my current a/c, savings and stock to another bank ....I dont fear anything Peston, but incompatence I dont tolerate.

Why is this a problem caused by the government?

If Tony/Gordon had intervened to prick the housing bubble sooner they would have been a nanny state, there would have been a chorus that self regulation works better than government.

Now everyone blames them for the greed and intellectual bankruptcy of the sub-prime lenders in USA and around the world that caused this mess

The government will however support the financial system which it can not allow to fail

No 18 tonyparksun

If Tony or Gordon had factored the cost of housing into the inflation calculation then the rate of interst would have gone higher sooner and the housing bubble would at the worst have been a lot smaller.

The reason they did not do that was they enjoyed the beneficial illusion of low inflation and prosperity connected with what any intelligent person could see was a dangerous asset bubble.

No, I am sorry this government were and remain active participants in the collective illusion which has gripped the western world these last ten years or so.

@tonyparksrun - IMO Brown found it very handy to let cheap money bubble up the economy, encourage reckless borrowing and lending and boost house prices which he could then milk for tax. Β£6billion in stamp duty alone!

In turn, this kept the middle classes happy and willing to put up with the covert taxation Brown also skinned them with. He then opened the borders to pull in cheap labour to keep the unions under control and wage inflation down.

How hard would it have been to put lending restrictions on banks to insure their solvency, put in place a deposit g'ttee scheme at 100% of, say Β£100,000. this would have gone some way to contain excessive lending. Then again, they could have managed the FSA/BofE/Treasury mess better.

Prudence? Ha ha ha.

Brown was more than happy to let it rip so he could tax and spend the 'gains' on his social engineering.

Now we are going to end up paying massive welfare payments for all the imported - and soon to be unemployed - labour and their children, education and health needs.

yes hbos_shareholder incompEtence is a terrible thing - if you didn't fear anything you wouldn't be calling it a 'precautionary measure'. In times like this i'm not suprised the systems are struggling - they've not had to cope with a fall like this before, and the strain of so many people trading is undoubtedly causing troubles - had you considered that the person on the end of the phone might simply not know? If you have your c/a, savings and stock with HBOS I wouldn't be suprised if you've benefitted from the rising success and share price over the past few years, only to withdraw everything when things get tough citing 'technical issues' as the reason - it is traders like you who are creating these problems.

One of the earlier posters asked, "The US Govt ploughs $billions into that insurance 'giant' AIT, but where has the money they 'lost' in the first place - gone?"

It's been lent in mortgages to people in the US who can't afford to repay the loans. With falling property prices the collateral no longer repays the value of the loan and the banks (or their insurers, like AIG) have to cover the shortfall.

This is probably the most ridiculous blog I have ever read. Does Robert Peston know nothing about financial markets? The reason HBOS shares were under pressure first thing this morning had nothing to do with its share of the UK mortgage market.

I'm sorry, but I feel this is deliberate scaremongering and has no basis in either fact or sensible speculation. If Robert Peston does not know the answer, he should not pretend he does.

I keep reading suggestions that depositers should be given a guarantee. Surely they are (and have been for many years). I realise that it is limited but most ordinary investors are more than covered. It strikes me that a lot of people are getting rich by talking HBOS down. The fall in its share value represents sentiment and does not seem to be based on fact. For all we know people blogging on here could have a vested interest in seeing HBOS shares fall. Somebody is going to pick up it's assets on the cheap; just as it would appear Barclays may make a killing from the Lehmans collapse.

We can blame the Government or we can blame the management, however the markets and shareholders must share responsibility for the problem.

In the race for double-digit growth and the obsession with turnover, shareholders have led the institutions throw caution to the wind for short term results.

How many shareholders stood up at meetings and advocated moderate but sustainable growth in the interests of long term value? Very few, I would surmise!

I believe,despite the obvious greed of banks,it is speculators who are responsible for what is going on in the financial markets.People like a certain Mr.Soros,who have lots of money and seize on an opportunity to increase their wealth,regardless of the damage,pain and suffering it does to millions.Am I correct in believing they can purchase shares without paying for them immediately and sell them at a profit later without having put their greedy hands in their pockets?Surely worldwide regulation is badly needed to stop this abuse.

if someone has a lot of money in bonds in bank of scotland and it goes really bad what will happen,what chance is there of this bank folding?and would it be advisable to place more money in bonds with this bank at this time?

It’s a good day to be working from home watching events unfold.

Next headline could be β€œTesco’s swaps 1,000,000 club card points for Barcalys”

Can money disappear?

If it's virtual money, a load of digits on a computer system, can it just vanish off the face of the earth? How much of the money being lost is actual real money.

Once all the dust settles will anybody be prosecuted, will there be an inquiry, will we learn any lessons. I doubt it.

The Rich get richer the poor get poorer.

what really annoys me is when you want to open a new bank account (even if you are already an existing customer) you have to provide all sorts of information about yourself, ie utility bills, passports etc for security reasons. I think in these troubled days, it should be the banks who should be giving us assurances and references as their stabiilty and financial security. What do others think?

Why are people so ignorant?
Banks have far greater liquidity and freedom of operation than Building Societies who have greater restrictions built in on Liquidity ratios and therefore in theory more vulnerable both to a run on cash and to exposure to the housing market - yet millions are moving cash from banks to Building societies.

10.45 Halifax share dealing finally put up notice notifying of technical issues via online trading due to volumes being traded.......Was that so hard to do yesterday?

At certain times of crisis the Government, BoE, FSA step in to try to take control of the situation and stop things spiralling out of control. We can see it by the funds the BoE is releasing and the positive pressure being put on HBOS to "merge". Similarly when there is a run on a company's shares it can be temporarily de-listed to allow it to stabilise its position.

Would it not also be a good idea for the authorities to temporarily outlaw short selling and spread betting until the markets have stabilised ?

Allowing someone like Soros airtime to say that the market is doomed when we suspect that he probably has big bets placed on the market falling seem a little odd.

In a stable market, shorting can be an acceptable trading and hedging strategy but in an impending crisis it can only serve to drive the destructive downward spiral.

DEVALUATION OF CURRENCY IS THE NEXT STAGE OF THE CREDIT CRUNCH.

#10: "It needs to be made very clear to the short sellers by their colleagues in the City that they are creating a nasty smell that will stick around the City for decades.

Do they want to be tarred with the reputation as being the people who sold Britain short at a critical time?"

Do you seriously think they care? This reminds me a little of when the pound crashed out of the ERM back in the early 90s. It was driven in no small part by currency speculators who smelt blood and realised that they could out-bet the government. They caused a lot of financial misery. Do you think they cared?

A week ago, the economic "experts" were saying that Lehman Brothers was "to big to fail".......

How is short selling legal?

The short seller borrows shares in HBOS from my pension fund and sells them on the cheap to force down the price.

My pension fund gets the shares back when they are worth less than when they loaned them so my pension pot is now smaller.

Doesn't the pension fund have a duty to maximise the value of my fund? And hasn't lending the shares breached this duty? Can I sue my pension fund for lending my shares for short selling?

HBOS is the biggest of mortgage lender in United Kingdom, and knowing full well the problem of the credit crunch and the problem housing market is fasing, I suspect HBOS is potentialy the next Leamen Brothers, and this is the only reason HBOS is rushing to join Lloyds

'HBOS is one of those rare banks that's absolutely central to the financial system.

The economic jolt that would be engendered to the UK economy if HBOS went down, wreaking havoc for millions of savers and for the housing market, would be catastrophic.

So the government would be obliged to bail it out, long before that happened.

HBOS is, in the jargon of regulators, far too big to fail.'

How can RP be allowed so make this statement ?

Sure, catastrophic repercussions will follow if HBOS is allowed to fail.
But even worse catastrophic repercussions will follow if Government loans are given to HBOS (and/or Lloyds) to keep the company temporarily solvent until the house price crash wipes out any company value, at which point a much worse and depression forming catastrophe will occur.

So HBOS is not too big to fail, just fork of a small and a large catastrophe !

How can RP be allowed to misguide the public ?

Re: Comment 37

"HBOS is the biggest of mortgage lender in United Kingdom, and knowing full well the problem of the credit crunch and the problem housing market is fasing, I suspect HBOS is potentialy the next Leamen Brothers, and this is the only reason HBOS is rushing to join Lloyds "

No way has HBOS, the retail bank, deposit taker and mortgage lender any similarity to Lehman. HBOS' problem is another that we've taken in from America - borrowing short term to finance long term. Now the money market has seized up it cannot get its hands on money to keep its mortgage business afloat.

It probably could get by as it has reasonable capital but it's the old story of confidence and everyone panicking. Honestly, a clang somewhere in the financial markets and those in the biz are running around like headless chickens.

Worse, the media are inciting the public to panic so I wouldn't be surprised to see a run on HBOS too.

Just back the company like the "Rock" escapade. Only when the government stepped in to "guarantee" all deposits did things calm down.

So Govt - get your act together and back HBOS and all the depositors hard earned CASH!!!

Its unbelievable that we should be forced to loose anything thats stored in a bank.

In reality a bank account (seen as no risk) is now in effect a high risk item similar to investing in stocks.

"How is short selling legal?"

Why should it be illegal? Very few dealers actually do this, along as it isn't a naked trade. Besides a lot of people "sell short" simply to get rid of shares expected to fall. That's the market.

What's different from short selling shares and, say, you selling your house mid-2007 on the certain knowledge that values wil drop drastically, then buying a similar one back in 2010 when it'll cost around half the price?

In life a policeman cant go on strike. This is to ensure the basis of our society is stable and not open to anarchy.

In the same way Banks and Financial orgs should not be open to abuses of the system such as short trading.

To have good banks open to people selling shares they dont have based on expecting the prices to fall - then buying the real shares cheaper - seems just underhand to a normal punter.

As normal people in the street we'd not be allowed to run a shop in the street with such low values and high risks.

HBOS - LLoyds will be merger in shares not cash payment. I am amazed that you have not discussed Government and Bank of England involvement as this merger can not go ahead without significant backing from Bank of England. Lloyds could not meet HBOS liabilities on its own and this will be a deal similar to Bear Stearns t/o by J P Morgan WITH Tax payer, Bank of England and Treasury backing.

So lets get real HBOS's problems will not go away with a merger with Lloyds. This is a rescue that will only happen with Billions of backing from HM Government.

"What's different from short selling shares and, say, you selling your house mid-2007 on the certain knowledge that values wil drop drastically, then buying a similar one back in 2010 when it'll cost around half the price?"

No comparison.

The point is the people lending shares to the short seller are loosing value. And if it's my pension plan then I'm being cheated.

So OK it's not short selling that's dodgy it's the pension fund managers who are defrauding me. They have a duty to look after my pension interests which they ain't doing.

If the pension plan manager looses 50% of the value of HBOS shares in my plan he has conspired with the short seller to defraud me and millions of others.

HBOS/LLoyds TSB marriage
".... too big to fail ....." so let's make them bigger and by-pass anti-competition laws while we are at it ..... now that is joined up thinking! Gawd help us all.
The only way we are going to control the runaway juggernaut that is the financial world is to legislate that no-one can have a greater market share than (say) 10%, and that the regulator can decide what market-share is (domestic/international/sneaky tricks).
Laymen like me have been watching with incredulity the complete invention of money for the past decade. We were all working so much harder but the taxation and red-tape was soaking up all that effort, it was never improved wealth. It was blantantly obvious money was being stolen (all right borrowed then,) from the future.
The lemmings of the banking world that all copy each other in a dizzy circle til they slip down the plughole cannot ever be trusted to do anything sensible, prudent or long-term; they must all therefore be reduced in size, so that each of them cann ot do too much damage on his own. All the talk about being huge to enable them to compete in world markets is a load of baloney.
Did anyone not look at these smug photographs of the masters of the universe in the sunday business papers and think.... I wouldn't trust him with my kids pocket money.
I hope these fools are just quivering in shame in the corner of their plush offices, but I fear not -just looking after No. 1 as always.

Oh, and another thing. Never trust government to understand anything and make a good decision. I have seen how they work, almost none of them have ever been responsible for anything outside government (employees, costs, R+D, budgets, savings, creating a profit, working up a sweat.) They have less than no experience of how things work. They will waste our money just as fast as the banks, but be gullible to boot.

Best regards,
colin mackenzie

Pension Funds and Charities should be taxed on profits earned if they put money into hedge funds because it is trading, not investment.

HBOS shares should have been suspended, pending clarification of the talks. The Stock Exchange is too frightened that the hedge funds will take legal action.

Many small investors could not deal because some internet brokers had computer failure or could not answer the telephone calls.

Pension Funds and Charities should also be taxed on income from stock lending.

It is anti-social because short selling can destroy companies and cost money to the taxpayer - the tax would partly offset this.

What has to happen now is a realism about mortgages.

For years they have been 'this much, every month, every year'.

The real world doesn't work like that.

Mortgage products must allow uneven repayments, to allow 'holidays' when times are hard.

If you repossess, you sell houses at auction at knock-down prices. You get less back that way than by renegotiating terms.

And a family gets to keep their family home that way.

It's time for financiers to become human beings.

They'll actually make more money that way.

But it does mean that they can discriminate between honest folks and shysters.

Given the numbers of shysters in 'financial services' currently, that may prove a challenge.......

So be it.

Is this the beginning or the end of the crisis?

In my view it is just the start and we are going to see an absurd situation with millions out of work and weak banks re possessing homes that can't be sold because no one can afford them.

What will the financial institutions do with all the empty property?

What will the government do about all the homeless people and the loss of revenue because of bankrupt individuals and businesses.

Will we still spend Β£20 million a day in Afghanistan and Iraq playing at world policeman; or will that money run out too?

When an individual goes bankrupt, he/she is ostracised by the financial community for at least 6 years. Perhaps those who have driven us into this mess who lead and mange the economies, the banks, the treasuries and governments should be punished in the same if not an even harsher way?

Times like these need leaders who can think out of the box and take decisive action quickly. That however is not the typical description of politicians, institutional managers or public servants.........................

....................................we therefore need to re think how we are led in such a crisis as ,ore of the same bull just will not be good enough.

Wake up and smell the coffee UK.

Lloyds raised sufficient share capital which was over-subscribed in 3 hours that will provide enough to cover HBOS funding shortfall.

Ultimately, HBOS's ABS portfolio will have to be reduced and thus its dependency on conduit financing.

Why did HBOS a UK retail bank, lending UK mortgages, go into the USD? The business is global and it has to satisfy stakeholders that include pension funds and insurance companies who manage our pensions and insurance. If the share price is poor, they will sell off and the ultimate effect will be it not being able to lend as much to the UK mortgage market and raise the cost of its mortgages.

Finally the US has taken the step that was needed.

However, it has acted lat and its delay has caused reverberations all over the world.

Many who had invested in mortgage-backed securities could not have known the ridiculous deals that were offered to US sub-prime mortgagees as the details may not even have been included in the legal documents as under US law they were need not have been included. The US banks obtained cheap money when the Fed rates were between 1-1.75% over four years. The oversupply of cheap money caused them to offer initial discounts of up to 50% for the first 1-3 years and then claw it back over the following years. So (this could be a exaggeration) a 13% mortgage rate reflecting the credit statues of a sub-prime person could be offered at 6.5% a year for 3 years and then the rates would climb not only to the 13% but also recouping the discount over the following years. If the deals were mabe as a variable rate plus the charge for the poor credit, Fed rates went by 300% in 9 months therefater.

The US authorities sould have regulated better and the Fed should have indemnified the sub-prime mortgages temporarily and took on these exposures of banks when the problems started to arise. It would have been cheaper and the impact less severe.

The Savings and Loans problems in the 80s cost the US $160bn and it took the US 3 years to recover. this one is going to cost more than $700bn and the US has already a high amount of debt floating around the world such that its interest payments per day are going to be enormous. If it goes into recession, it needs some way to earn income to pay this and keep people's mind off this hardship, including the probale erosion of the subsidies it internally grants its economy.

With the falling prices of houses as a result of the credit crunch, does this mean that people at large can look forward to a reduction in Council Tax resulting from a revaluation of Council Tax band ranges.