Short Selling Rumors Send U.K. Bank Stocks Tumbling

Mar 19 2008 | 11:03am ET

Rumors of hedge funds shorting the stock of the U.K. largest mortgage bank sent the financial company’s shares down sharply on Wednesday.  Shares of The Halifax fell 20% amidst the rumors, which were accompanied claims that the bank had to seek emergency funding from the Bank of England.

The Bank of England and the Financial Services Authority quickly issued statements denying the rumors. The FSA also announced that it has launched an investigation into the trading activity surrounding The Halifax—which is owned by the U.K. largest bank HBOS—and other banks and went further, accusing traders of “market abuse by spreading false rumors to profit from short-selling.”

The mortgage bank recovered most of its losses following the announcements from regulators.

HBOS has a sizable mortgage book, though unlike Northern Rock, it has a large depositor base and a solid balance sheet.

The Royal Bank of Scotland was also affected by the hedge fund short-selling rumors.

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