State body aids short selling of banks
The state-backed body that looks after taxpayers' interests in Britain's banks has been criticised for potentially offering to help short-sellers under*mine the battered lenders.
By Philip Aldrick, Banking Editor
Last Updated: 12:27AM BST 18 Apr 2009
Photo: Peter Macdiarmid
In a move that could worsen the financial crisis, UK Financial Investments, the Treasury-housed organisation that manages a 70pc stake in Royal Bank of Scotland and 43.5pc in Lloyds Banking Group, has refused to rule out lending shares to hedge funds.
Hedge funds sell borrowed stock hoping prices will fall and have previously been accused of driving down share prices to maximise their return.
"We are a commercial investor and reserve the right to utilise all means available to investors," said a UKFI spokes*man, after confirming stock-lending remained an option. "We have no current plans to lend stock," he added.
Short-selling was considered so destabilising at the height of the banking crisis the Financial Services Authority temporarily banned it. The FSA's decision was prompted partly by an attack on HBOS, when short-sellers planted false rumours that saw its shares plunge 17pc in minutes.
Vince Cable, Liberal Democrat Treasury spokesman, said: "It's bad enough the ban on short-selling has been withdrawn. The idea that this Government agency should be complicit in promoting it seems bizarre. It would be creating an environment that could be used to drive down the stock price."
The Government plans to sell its stakes in RBS and Lloyds but needs the share prices to recover. RBS shares must rise above 65½p and Lloyds above 173.3p for the taxpayer to recover its £37bn investment. RBS shares closed at 32.7p and Lloyds at 104.6p yesterday.
UKFI recently told the Treasury Select Committee it expects to offload the shares in a series of placings rather than one big disposal, but will probably have to wait years before selling out completely. In the mean time, it can earn fees by lending the stock. (AtW's comment: yes and reduce value of total shareholding, ****ing smart innit? )
"Stock-lending is a perfectly sensible thing to do because if you're sitting on stock you can earn extra money from it," Justin Urquhart Stewart, of 7 Investment Management, told Bloomberg. The news agency obtained the original information through a Freedom of Information request.
Short-selling involves borrowing stock to sell it in the expectation prices will fall. The share is bought back at the lower price and returned to the owner. The borrower pockets the capital gain while the lender is paid a fee.
Any decision by UKFI to loan stock will outrage the 2m small shareholders who have seen more than 90pc of their investment in HBOS and LLoyds wiped out. It would also fly in the face of the regulatory crackdown on short-selling of financial stocks last year.
The FSA lifted the ban earlier this year and replaced it with a disclosure regime to provide more transparency to the markets. As the new regime only applies to short-sellers, the UKFI would not have to disclose whether it was lending any stock.
The UKFI spokesman added: "If we were to [lend shares], the decision about whether or not to disclose this would be made on a case-by-case basis, taking into account the commercial sensitivity of the case in question".
Lloyds and RBS declined to comment.
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This is ****ing crazy - make a few dimes on allowing hedge funds to borrow your shares so that they drop in value and hedge funds make big bucks and you end up with having portfolio with lower value, wtf?
This sort of "portfolio management" only makes sense if the manager gets big bonus if he delivers profits, because of that he totally screws the owner and makes some money from lending those shares, while blaming reduced value of shares owned on market volatility.
The state-backed body that looks after taxpayers' interests in Britain's banks has been criticised for potentially offering to help short-sellers under*mine the battered lenders.
By Philip Aldrick, Banking Editor
Last Updated: 12:27AM BST 18 Apr 2009
Photo: Peter Macdiarmid
In a move that could worsen the financial crisis, UK Financial Investments, the Treasury-housed organisation that manages a 70pc stake in Royal Bank of Scotland and 43.5pc in Lloyds Banking Group, has refused to rule out lending shares to hedge funds.
Hedge funds sell borrowed stock hoping prices will fall and have previously been accused of driving down share prices to maximise their return.
"We are a commercial investor and reserve the right to utilise all means available to investors," said a UKFI spokes*man, after confirming stock-lending remained an option. "We have no current plans to lend stock," he added.
Short-selling was considered so destabilising at the height of the banking crisis the Financial Services Authority temporarily banned it. The FSA's decision was prompted partly by an attack on HBOS, when short-sellers planted false rumours that saw its shares plunge 17pc in minutes.
Vince Cable, Liberal Democrat Treasury spokesman, said: "It's bad enough the ban on short-selling has been withdrawn. The idea that this Government agency should be complicit in promoting it seems bizarre. It would be creating an environment that could be used to drive down the stock price."
The Government plans to sell its stakes in RBS and Lloyds but needs the share prices to recover. RBS shares must rise above 65½p and Lloyds above 173.3p for the taxpayer to recover its £37bn investment. RBS shares closed at 32.7p and Lloyds at 104.6p yesterday.
UKFI recently told the Treasury Select Committee it expects to offload the shares in a series of placings rather than one big disposal, but will probably have to wait years before selling out completely. In the mean time, it can earn fees by lending the stock. (AtW's comment: yes and reduce value of total shareholding, ****ing smart innit? )
"Stock-lending is a perfectly sensible thing to do because if you're sitting on stock you can earn extra money from it," Justin Urquhart Stewart, of 7 Investment Management, told Bloomberg. The news agency obtained the original information through a Freedom of Information request.
Short-selling involves borrowing stock to sell it in the expectation prices will fall. The share is bought back at the lower price and returned to the owner. The borrower pockets the capital gain while the lender is paid a fee.
Any decision by UKFI to loan stock will outrage the 2m small shareholders who have seen more than 90pc of their investment in HBOS and LLoyds wiped out. It would also fly in the face of the regulatory crackdown on short-selling of financial stocks last year.
The FSA lifted the ban earlier this year and replaced it with a disclosure regime to provide more transparency to the markets. As the new regime only applies to short-sellers, the UKFI would not have to disclose whether it was lending any stock.
The UKFI spokesman added: "If we were to [lend shares], the decision about whether or not to disclose this would be made on a case-by-case basis, taking into account the commercial sensitivity of the case in question".
Lloyds and RBS declined to comment.
-----
This is ****ing crazy - make a few dimes on allowing hedge funds to borrow your shares so that they drop in value and hedge funds make big bucks and you end up with having portfolio with lower value, wtf?
This sort of "portfolio management" only makes sense if the manager gets big bonus if he delivers profits, because of that he totally screws the owner and makes some money from lending those shares, while blaming reduced value of shares owned on market volatility.
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