Speculators made a £190million profit from HBoS shares after details of takeover talks with Lloyds TSB were announced on the BBC
City watchdogs are expected to investigate how speculators made a £190million profit from HBOS shares in a frenzied two minutes of trading immediately before news of the bank’s rescue was made public.
Details of the takeover talks between the bank and Lloyds TSB were controversially announced by the BBC’s business editor Robert Peston on Wednesday morning.
Before his 9am broadcast, HBOS shares had dipped to a low of 88p. But his scoop sent the price rocketing to 215p in the space of an hour, giving the mystery buyers huge instant profits.
In just two deals between 8.57pm and 8.58pm, buyers snapped up more than 20million HBOS shares at 96p each, netting millions of pounds in profit.
Examination of the frenetic trading has led to suspicions of a leak, causing widespread anger at the close of one of the most turbulent weeks the City has endured.
Last night Mr Peston insisted his information on the talks was ‘tightly held’ and described the share-dealing frenzy as ‘scary’.
It was a report by Mr Peston that also led to the run on the Northern Rock bank which caused its collapse.
There has also been criticism of the delay between the news breaking on the BBC News channel and official confirmation from HBOS four hours later.
Keith Skeoch, chief executive of Standard Life Investments, said: ‘Someone was in possession of information and that information was leaked which caused a movement in HBOS’s share price.
‘The market has a mechanism for release of information. It must be adhered to if we want to stop market abuse – and we must stop market abuse.’
Research conducted by the Financial Services Authority, the City watchdog, indicates that insider dealing of some kind takes place before about a quarter of all takeovers.
But it has made a concerted attempt to reduce the practice and in recent months has launched a number of legal actions, usually targeting small-time dealers.
In the summer it investigated allegations that HBOS had been subject to market manipulation by ‘short-sellers’ who gamble on share price falls. However, it failed to bring any prosecutions.
Hedge funds, the aggressive investment companies that use complex investment techniques to make a profit, are often blamed for insider dealing.
One leading hedge fund boss told The Mail on Sunday: ‘I am sure there are hedge funds who insider-deal, but there are just as many banks whose trading desks are up to no good.’
Others suggested the trading on Wednesday could simply be coincidence.
In last week’s rollercoaster of huge share price rises and falls there was a dramatic volume of trading.
Consequently, investigators are expected to have huge difficulty picking out the genuinely suspicious activity.
The BBC’s Mr Peston said: ‘I broke the story at almost exactly 9am. I broadcast on the News channel from my home and filed my blog simultaneously.
‘I had been working on the story that morning and I filed as soon as I stood it up.
‘The information was very tightly held. If there were big buys before I broadcast, that is quite scary.’
Fears over insider dealing centre on the few minutes just before the BBC’s 9am news bulletin on News 24 on Wednesday.
Between 8.57am and 8.58am, there were a number of massive deals involving millions of shares. The two single biggest buyers snapped up 10million and 12.4million HBOS shares respectively.
In total, about 160million shares changed hands, twice the daily average volume in recent weeks, and buyers would have paid around 96p a share.
Within seconds of the BBC bulletin, HBOS shares had leapt in value. By 9.45am, the shares were trading at about 215p each.
Buyers of the 160million shares had made a paper profit of about £190million.
The talks between Lloyds and HBOS were confirmed four hours later and the deal confirmed on Thursday morning.
Lloyds TSB currently values HBOS at £12.5billion, 236p a share.
An HBOS spokesman said: ‘We take our market disclosure responsibilities very seriously.
‘We believe that our statement was issued as expeditiously as possible.
‘It is important to remember that the current volatility in bank stocks is almost unprecedented.
‘The last two weeks in particular have been characterised by extraordinary developments in the UK and U.S. banking systems, which have been impacted by this volatility in a significant way.’
Hector Sants, chief executive of the Financial Services Authority, declined to comment other than to say the authorities would always investigate suspicious trades.
There was much speculation last week over who leaked the news of Lloyds TSB’s takeover bid to Mr Peston.
If it was the Treasury, hoping to avoid a run on the bank, it would be a serious breach of the Takeover Code.
By Simon Walters, Simon Fluendy and Ian Gallagher
Last updated at 1:53 PM on 21st September 2008
Source: Daily Mail