ANDY Hornby last night mounted a passionate defence of his speculation-hit bank as he sought to reassure the markets that HBOS was fundamentally, financially sound.
In a forthright intervention, the chief executive of the Edinburgh-based bank maintained that the rumour and innuendo were completely unfounded. His response came after the bank's shares took a pounding early yesterday amid fevered speculation that
HBOS had serious financial problems.
In a febrile market, worried by the collapse of Bear Sterns in the US and concerns that some UK institutions faced a liquidity crisis, Hornby moved to quash the rumours, which hit HBOS the hardest of all the banks.
Speaking after an extraordinary day in which both the Financial Services Authority and the Bank of England were forced to issue statements to calm speculation, Hornby struck a defiant note. The HBOS chief executive told The Scotsman: "Our trading is absolutely in line with expectations.
"We have had no cause to issue a statement saying there has been any significant change in trading conditions since the publication of our results. Indeed, we are not allowed to hold information that is not available to the whole of the market."
HBOS slumped as much as 17 per cent to a record low of 398p yesterday morning as speculation swept through dealing rooms. However, the share price recovered to close just over 7 per cent, or 34p, lower at 446.25p last night after the intervention by the FSA and the Bank. Reinforcing his message, to the still nervous markets Hornby added: "We have 23 million customers, and 2.1 million small shareholders – more than any other company. We are the biggest mortgage institution. So we are right at the heart of the banking system."
Hornby was forced to take the unusual step of speaking out after the FSA launched an inquiry into potential stock-market abuse, saying traders may have been profiting from spreading false rumours. The FSA warned it would not tolerate traders starting rumours and dealing off the back of them.
In what appeared to be a co- ordinated move, the Bank of England also took the unprecedented step of denying rumours that HBOS had turned to it for emergency funding.
Last night, Hornby's reassurance that the bank was fundamentally sound was echoed by City brokers and analysts, though there were still fears that HBOS, which relies heavily on mortgage business, is exposed to the credit crunch. David Williams, banking specialist at broker Fox-Pitt Kelton, said: "What has happened to HBOS's shares is because the market is a very nervous place.
"Given what happened to Bear Stearns, they are nervous about any rumour. But I think it is significant that the FSA, which as the banking regulator would know the financial position of HBOS, was more concerned yesterday to warn about unfounded rumours than saying anything (negative] about HBOS".
Williams said he would be "very surprised" if it turned out HBOS had liquidity issues.
Keith Bowman, a banking analyst with Hargreaves Lansdowne, said: "You have to be guided by what the company itself says. HBOS has come out and denied the rumours. They are obliged (under Stock Exchange rules] to highlight any difficulties that might affect profits. They haven't done."
However, Alex Potter, analyst at stockbroker Collins Stewart, said it believed the share-plunge by HBOS was "on fears surrounding write-downs and liquidity". He maintained: "We believe its exposure level of exposures to UK consumers' 'toxic' debt investments, gearing to private-equity gains within revenues and potential impact from rising wholesale funding costs mean the bank will under-perform the UK banks sector on a 12-month view."
The full article contains 612 words and appears in The Scotsman newspaper.
