Watchdog’s probe into city rumours

Mar 21 2008 by Adrian Pearson, The Journal

THE Government’s financial watchdog yesterday said it has been watching the markets for dodgy share dealings since just before the Northern Rock crisis

The Financial Services Authority is continuing an investigation into malicious rumours which forced the Bank of England to issue a strong denial that Halifax Bank of Scotland (HBOS) had requested a loan similar to that needed by Northern rock last summer.

In just a few hours trading on Wednesday HBOS shares plunged 20% after “wide boy” traders allegedly spread rumours the bank was in trouble.

The lower share price is believed to have let dealers buy up shares much cheaper than they would normally trade for.

And as the FSA continues its investigation, it emerged last night the Authority has been looking for suspicious trading since just before the Northern Rock crisis began in September.

A FSA spokeswoman said that while they kept an eye on the markets as a matter of course, they believed they had had more “reasons to be concerned” since summer.

She added: “We keep a close eye on the market, we always do.

“And while we are now studying the HBOS situation we have been monitoring the whole market much closer since just before summer.”

Throughout the inquiry into the run on the Rock, sources suggested the City was happy to see the bank go under and others have accused opposition banks of deliberately leaking details of Northern Rock’s problems to damage the bank’s name.

The news came as the FSA announced that Clive Briault, the managing director of its retail business unit, was leaving.

His departure is believed to be as a result of the problems at Northern Rock, a bank he was supposed to be monitoring.

The FSA has admitted that it did not undertake an in-depth assessment of Northern Rock for 18 months before it ran into trouble.

The regulator is due to release an internal report on mistakes it made in monitoring the bank by the end of this month.

And in a further Rock repercussion the Bank of England yesterday pumped another £5bn into money markets as it met the bosses of Britain’s biggest banks.

The Bank doubled the weekly funding available to banks and lenders to £10.93bn in the latest of a series of moves to avert a new devastating twist in the credit crunch.

Representatives of the major high street lenders met with Bank governor Mervyn King to discuss ways of averting another banking crisis.

For more on the global credit crunch see Page 29