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article image$200 million in one day- rogue trader hits UK stock market

By Paul Wallis     Mar 20, 2008 in Business
It’s not all bad news for some. Rumors deliberately spread in the market sent down the price of Halifax Bank of Scotland, but rogue traders made a lot of money out of the bank as its price plunged 17%.
This is illegal trading, it is stock manipulation, and it was a pretty easy way to make money. In fact it was so simple that it’s even woken up the regulators.
The Sydney Morning Herald:
An email circulated by an anonymous banker, and seen by The Daily Telegraph, falsely alleged that a newspaper was to run an article today on problems at HBOS which "will raise the spectre of a run on the bank".
It was also falsely alleged that HBOS, Britain's biggest mortgage lender, had sought emergency talks with the Bank of England over the Easter weekend, The Telegraph report said.
The shareprice quickly plunged, amid anxiety in the banking sector and following the collapse of the US investment bank Bear Stearns last week.
The selling of shares also spread to other banks and helped push down the FTSE-100 index, which has seen wild fluctuations in recent days, the Telegraph report said.
It’s when you get around to mentioning the sky is falling that matters. People were prepared to believe the worst, and the rest was just trading.
This isn’t unknown in the markets, by any means. In financial media, if you want to run something down, you use the words “leverage”, “exposure”, “property asset valuations”, and anything related to US mortgages and financial companies.
This is a pretty primitive approach, and it’s amazing it worked so effectively.
Halifax Bank isn’t exactly in trouble, as anyone who’d bothered to check their latest financial report (PDF doc) could have seen:
Underlying earnings per share increased by 6% to 106.2p (2006 100.5p). This is after recording negative fair value adjustments on traded investment securities of £227m and claims of £135m arising from the 2007 summer floods. Underlying profit before tax increased by 3% to £5,708m (2006 £5,537m). Corporate, Insurance & Investment and International all achieved double digit
underlying profit growth more than offsetting the reduced profit in Retail and Treasury.
In other words, they're doing fine. They made 5.7 billion pounds profit, during the meltdown.
People don’t check these things, some don’t even know how. For some reason they prefer to rely on rumors in a very unreliable, often just plain dishonest, trading environment.
The rumors alone wiped off about 3 billion pounds’ worth of value from the stock.
Regulators and investors have a lot to worry about here, because the current market is highly neurotic, not making money, and in the finance sector very short on hard facts and prepared to believe the worst.
One currently popular method of avoiding the markets is to move into a cave.
More about Halifax bank scotland, Trading, Ftse