The HBOS story unfolds
As the markets opened today there was a sudden surge after news that AIG has been saved by the US authorities with a multi-billion dollar bailout package. However, this boost of confidence was very short lived with the UK markets falling back in to the down trend of recent days. The biggest loser today is HBOS which at one point fell by over 50% breaking the £1 barrier as it did so. More news is coming out of the troubled banking group and it does not look good for the next few months....
While the bank itself is well financed and has a solid balance sheet - confirmed by the bank and the regulator - the main concern is the fact that the like Northern Rock (but to a lesser extent) HBOS is dependent on borrowing money from the money markets to finance it massive mortgage book. Rates on the money markets increased to 8% overnight and news is coming out that HBOS will need to refinance £198 billion in loans over the coming months.
This is the real reason why the bank is struggling, why the 'shorters' have grabbed their chance of glory and why the share price has collapsed. But help is at hand with at least two major UK banks waiting in the wings to bail out the fallen giant in the event that it cannot carry on as a separate company.
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