ALEX Salmond's attack on the "short-selling spivs" who forced the merger of Scotland's oldest bank has backfired after it emerged that his chief economic adviser's firm profits from the controversial trading practice.
Sir George Mathewson is chairman of Toscafund Asset Management, a hedge fund that sells shares short on the financial markets.
The financier told the Sunday Herald that short selling was a "perfectly valid" activity and appeared to contradict Salmond by failing to support an outright ban on the practice across every sector - a call the first minister made on Friday.
The row caps a week of global economic turbulence in which various financial institutions either folded or merged.
The crisis was keenly felt in Scotland, where HBOS, which includes Bank of Scotland, was taken over by Lloyds TSB after its share price tumbled.
The merger will result in Scotland losing its oldest bank and raises the prospect of the country losing thousands of banking jobs.
Salmond said last week that he was furious the merger had been forced on HBOS by a "short-selling bunch of spivs and speculators in the financial markets". This was a reference to firms that engage in short selling, a practice which involves companies selling borrowed shares in the hope that they can be bought back at a lower price before they have to be returned to the lender.
The Financial Services Authority (FSA) has responded to the crisis by banning short selling in the financial sector until January.
However, it has now emerged that Mathewson, a prominent Nationalist supporter who chairs the Scottish government's Council of Economic Advisers, works for a company that sells short.
He is the chairman of the £3.5 billion hedge fund Tosca, a firm which according to its 2006 financial statement made a profit of £97,635,112.
Mathewson, the former chair of the Royal Bank of Scotland group, told the Sunday Herald that he agreed with the temporary ban imposed by the FSA, but described short selling as a "perfectly valid" enterprise.
"Every hedge fund engages in short selling. In fact, lots of people who are not hedge funds engage in short selling. In an orderly manner, short selling is perfectly legitimate and indeed helps the marketplace."
Asked if he defended his own company's use of short selling, he said: "Oh yes, I do. Every company does this. The real problem is when it gets into this level of turbulence in the market, with opportunities for abuse."
Asked if he agreed that the ban on short selling should be extended across the economy, a call made by Salmond, he said: "Not unless the market is disorderly."
On whether he could face the accusation of being called a spiv, Mathewson said: "If one's ignorant, one could take that tone. The reality is, like everything else, that it is what you do and when you do it. If you are deliberately trying to force a company into a situation that we have seen with HBOS, that is very different from covering your position in an orderly market."
Pressed on whether Tosca would now suspend its own short-selling activities, he said: "We won't be short-selling financials - we do financials - because it is illegal. No, we will not be selling financials."
Salmond used his briefing with Sunday newspapers last week to argue that the current constitutional arrangements were partly to blame for the loss of HBOS.
He said: "The position we are in at the present moment is a position that has been arrived at within the union, within the limited powers we have."
He also said Scottish independence would have given HBOS more leeway: "Would we have a Bank of Scotland if Scotland was independent? I think the answer is undoubtedly yes. The question is will we have a Bank of Scotland while Scotland is in the union?'"
Andy Kerr, Labour's Holyrood finance spokesman, said: "Clearly Mr Salmond is selling Scotland short by putting, in his own words, a spiv' in charge of Scotland's economic future. It is simply ludicrous for the first minister to attack short selling while his own economic adviser's firm profits from the same practice."
A spokesperson for Alex Salmond said: "Normal hedging is part of normal market place operations That's not the issue, the issue here is naked short selling and deliberately destablising the market in order to take advantage of the turmoil created.
"Not only has Sir George's company not been involved in that, but he has been forthright in condemning it - and as one of the first to recognise what was going on, he fully supports the action that was belatedly taken by the authorities to end this abuse of the market."
