Bullet Dodging, Bank of England Style

Today's middle market press headlines:

• Hunt begins for £100m rogue trader behind fake bank collapse rumour (Mail)
• Hunt for rogue trader after attack on HBOS (Telegraph)
• Malicious traders attempt to topple major bank (Times)

The theory being that, after shorting HBOS shares, one or more Doctor Evils spread rumours that the company was facing funding difficulties. All manner of denials by the company, the Bank of England and the FSA failed to prevent a fast run on the equity. Faced with potential headlines such as "Is Halifax the next Northern Rock?" and an inevitable (perfectly rational) run on deposits, I suspect the authorities engaged in serious arm twisting of media proprietors/editors resulting in the calming headlines above. It's always better for the country to be on the hunt for the city bad guy than standing in line for its money back from the Halifax. Let's face it, Halifax has a relationship with 40% of UK households so it could be a long line.

OK, well, here's a slew of nasty rumours about HBOS:

• 59% (£164bn) of their £278bn wholesale funding matures in less than 1 year
• The retail deposit base is just £215bn, in context
• Their recent Tier 1 debt issue paid a spread of 512 basis points over gilts
• The share price has fallen 60% from its highs
  

Oh, what - these are not rumours? Sorry I meant facts taken from published accounts and elsewhere. There was no assertion of insolvency yesterday (nor was there for Northern Rock), just the constant background hum of investors wondering if HBOS will survive the year from a liquidity perspective. So some people talked about it to others in the city? Big deal. Perversely, yesterdays market action makes survival more likely, but future earnings less so. The tri-partite mandarins had another wake up call and HBOS can expect a vast liquidity line from the Bank of England whenever it needs it.

And as for the Doctor Evil witch hunt, Alphaville got there before me.