HBOS – moments ago -off 51.65 per cent. Now rebounding on a BBC report of a takeover from Lloyds.
There was earlier some serious selling going on, with big volumes. One big selloff at 8:36 – just shy of 4m shares, and another at 8:53 for about 12m. And a series of failed support actions.
The FSA has issued a statement:
Since the beginning of the current extreme difficulties in the financial markets, the Financial Services Authority has worked intensively with all major UK banks to ensure they have credible capital and liquidity plans. We are satisfied that HBOS is a well- capitalised bank that continues to fund its business in a satisfactory way.
Cause for the selloff? A generalised collapse in confidence it would seem. There’s a bearish note from Merrill Lynch out which more or less makes clear HBOS’ predicament (emphasis ours):
On funding, a few points are worth making. HBOS has a loan to deposit ratio of 177%, which compares to UK large cap peers on 90-142%. Clearly this makes it the most exposed to wholesale funding markets, which are extremely stretched. We have estimated that HBOS has £12.5bn of term funding maturing in the rest of 2008. Following yesterday’s downgrade by S&P to an A+ rating, we think the term market is now effectively shut for HBOS at anything approaching economic spreads. This pushes HBOS into replacing its term funding with shorter term money. This has become expensive, as the overnight LIBOR rate of 6.79% yesterday (versus 5.49% on Monday) demonstrates. Moreover, it can only be a temporary solution for HBOS, because the bank cannot allow all its funding to become bunched at an overnight maturities. We have already seen short term funding (<1yr) move from 53% at the start of last year to 59% at end June this year, and we suspect that this has shortened even further since then.
Short term funding???!
Libor, as ML analysts note, is rocketing, which makes short-term funding very unattractive. More seriously, though, commercial paper lending to backs will surely collapse completely in the wake of the collapse of the Reserve Primary fund.