MYSTERIOUS global hedge funds which hope to profit from betting that the price of HBOS shares will continue to plummet emerged from the shadows yesterday.
On the first day of new rules to bring greater transparency to "short selling", three previously secretive funds were forced to declare their stake in the Edinburgh-based bank.
Under the new regulations, US-based investment firm Harbert Manage
ment Corporation (HBC) revealed it had shorted 3.3 per cent of HBOS shares – around £340 million – through its Harbinger hedge fund.
Meditor Capital Management – which acts on behalf of institutional investors such as pension funds – disclosed it had shorted a 0.3 per cent stake in the bank.
And Lansdowne Partners, one of London's biggest and most successful hedge fund groups – which currently has $19bn under management – said it shorted 0.58 per cent of shares.
Under new rules introduced by the Financial Services Authority the trio were forced to show their hand. In total the three hedge funds have taken a short position on 4.17 per cent of the bank's share price.
Last night shares in HBOS were driven down below the 275p discount price for the second time.
Short-selling, or "shorting", is when a hedge fund "borrows" shares in a company and sells it in the hope of buying it back at a lower price to return to the original owner – pocketing the difference as profit.
Secretive hedge funds – which have been held responsible for the fall in share value of a number of companies which have gone for rights issues – have rarely had to reveal their positions .
Yesterday a spokesman for Alabama-based HBC said simply: "Beyond disclosures required by regulation we don't comment on trading strategies."
The FSA has acted to prevent bigger investors possibly exploiting volatility in share prices of firms carrying out rights issues at the expense of smaller shareholders. Any short positions of 0.25 per cent or more must be revealed.
Yesterday HBOS shares closed "underwater", below the 275p discount price of the new stock being offered to shareholders.
The shares were down 4.25 per cent to 270.25p, causing worry for investors and underwriters.
It is unlikely all of the banks's shareholders, 2.1 million of whom are small shareholders – the largest small shareholder base of any bank in the UK – will want to buy stock worth less than 275p.
Last week it warned of another £1 billion in writedowns on investments hit by the credit crunch and predicted a 9 per cent fall in property prices this year.
The bank has stressed that its efforts to raise £4bn are on track. But if demand is low, the banks underwriting the rights issue could be left with substantial share holdings to shift with the potential for hefty losses.
HBOS investors are set to vote on the scheme on Thursday, with a 11 July deadline for shareholders to confirm their interest, assuming the issue is approved.
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