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The new scourge of the markets has struck again.

HBOS on Tuesday afternoon said that its Grampian credit arbitrage conduit would be using credit lines from the bank to repay maturing paper “until such a time as market pricing improves to a level acceptable to HBOS.”

The conduit, the bank added, has existing facilities sufficient to replace all of its ABCP outstanding but the action would have “no material impact” on HBOS.

Earlier in a generally bullish note, Merrill Lynch noted:

The possible downside risks at HBOS are slightly higher than the sample average because of the possible downside risks in its large credit arbitrage conduit, Grampian.

Large is right - relative to its European peers, though not necessarily in the context of HBOS itself.

Merrill’s numbers show that the possible decline in excess capital at HBOS as a result of potential funding required for the conduit is about 2.1 per cent - twice the closest European peer, which is Lloyds TSB at 0.8 per cent, itself a long way ahead of the next most exposed bank.

But Grampian is the largest credit arb programme among European banks, the report says, with 31 per cent exposure to CDOs and 70 per cent to US assets - though all of its exposure is triple-A rated, say Merrill.

So their table, right, would put Grampian head and shoulders in size above that other ABCP casualty, Sachsen.

Except that on Tuesday, HBOS were at pains to stress that all this was a pricing issue - not a survival one.

The bank would prefer to fund the conduit itself if it can do so more cheaply, than let a rattled market dictate the price at which it can roll over its paper.

And though Grampian may be the biggest of its type, Merrill’s estimates suggest that even for HBOS the downside here is limited to around 1 per cent of its sum-of-the-parts or a Tier 1 hit of 0.2 percentage points.

So, all very manageable — on paper — and HBOS felt emboldened enough to declare in its short formal statement that “this action will have no material adverse impact on HBOS.”

We’ll see.