In times like these, rumours and counter-rumours are the staple currency. Sometimes rumours take on a momentum of their own, even when they don’t appear to be based on any kind of truth.
This is a key week for HBOS. It seems that the bank may well be announcing big write-downs and revealing plans for a rights issue.
But does that mean HBOS is another Northern Rock in the making? It seems unlikely; the bank does apparently have a stronger capital ratio than any of its main rivals. But that is what the rumours said shares plunged the bank denied the rumours, in the end the Bank of England got in on the act to try and reassure everyone.
Trouble is, track-records are not good. We have been told banks weren’t in trouble before. We have known about the credit crunch now for getting on for a year, but only now are the banks making their write-downs. They hopelessly misread the signs and now, in addition to the liquidity gap, there seems to be a credibility gap too.
HBOS does include the giant mortgage lender Halifax and so that has led to increased worries that the bank is over exposed to the UK property market.
But the fact remains that this is a bank with a strong capital position as that famous banking analyst Mark Twain said, reports of the bank’s death are greatly exaggerated.
Yet, regardless of how strong the bank’s balance sheet is, there is another issue relating to HBOS.
The monthly Halifax reports on the property market were amongst the most bullish, and were perhaps a major factor behind the buy-to-let boom of recent years that must have surely pushed prices far too high.
As such it has a certain amount of responsibility.
It may need a rights issue to help shore up its balance sheet but the bank also needs to right the issue of mortgage holders whose original fixed rate deals are coming to an end, and who can no longer obtain mortgages that bear strong correlation with rates set by the Bank of England.
© Investment & Business News 2013