New York hedge fund manager John Paulson emerged as the only investor to retain a short position in the shares of HBOS since last week�s clampdown.
New York hedge fund manager John Paulson yesterday emerged as the only investor to retain a short position in the shares of HBOS since last week's clampdown on bets against banking stocks.
Paulson's firm, Paulson & Co, which has $35bn under management, disclosed that it had short positions in HBOS totalling 0.95% of its share capital. It is also shorting 1.76% of shares in Lloyds TSB, which last week announced it had secured a takeover deal for the Edinburgh institution.
Rules introduced by City regulator the Financial Ser- vices Authority last week banned companies from creating or increasing any short position in 32 financial stocks until January 16. It also told investors to declare to the market any position over 0.25% of a company's share capital by 3.30pm yesterday.
Shorting works by investors selling shares they do not own in the hope they can profit by buying them back at a lower price.
Although the practice can be traced back to 1609 and the sale of shares in the Dutch East India Company, after which it was first banned, it has come under renewed scrutiny recently after being blamed by some observers for pushing down the prices of banking stocks, particularly in the UK and US, and destabilising the stock market.
Paulson also revealed it is short 1.18% of Barclays and 0.87% of Royal Bank of Scotland Group, leaving HSBC the only one of the five biggest banks that Paulson did not disclose it was shorting The company, which boasts former Federal Reserve chief Alan Greenspan as an adviser, said in a statement: "Paulson & Co empathises with financial firms as to the difficult positions in which many find themselves.
"We support the FSA's desire to establish fair trading practices and to eliminate fraud and market manipulation. We will continue to comply with the FSA's requirements."
But the clampdown on short selling did not stop a number of financial stocks coming under pressure yesterday.
HBOS shares fared particularly badly, shedding 28.8p, 13.8%, to close at 180.2p, as investors worried about the possibility of its deal with Lloyds TSB unravelling and the impact of a weak housing market.
Lloyds TSB itself also came under pressure, closing down 4.8% at 261.75p.
Société Générale was the latest broker to scrutinise the HBOS-Lloyds TSB deal, pointing to the latter's fundraising on Friday as a sign of weakness.
"We are of the opinion that actions speak louder than words. If Lloyds had been highly confident of the strength of its capital base, it should not have needed an equity injection."
The analysts tipped HBOS to scrap its final dividend to deal with bad loans.
Ken Murray, chairman of Edinburgh fund manager Blue Planet, dismissed the idea of the HBOS-Lloyds TSB tie-up coming apart, pointing to its backing from government ministers who are securing an opt-out from competition rules to allow the deal to go ahead.
He added that HBOS shareholders, 75% of whom have to back the deal for it to go ahead, were unlikely to scupper the arrangement "given what they've been through" with a difficult fundraising and constant speculating about its future.
Bradford & Bingley also ailed in the market as rumours that the Financial Services Authority was seeking a buyer for the company failed to turn up anything concrete.
After trading hours, the company suffered downgrades from ratings agencies Standard & Poor's and Fitch, leaving it hanging on to the investment grade status that is vital to it securing funding from the market.
