The Peston wrote a blog note this morning in which he suggested that the banks had “asked” the chancellor for capital injections. He did so without being able to be clear on the names, terms or size of such a transaction.
Since it is known that he speaks with the authority of Downing Street, UK banks crashed approximately 20 – 30% on the news taking a (tentatively recovering) market with them. The volatility, of course, is much worse than normal because there are no longer any short sales of banking stocks to absorb the risk.
Had the banking stocks been allowed to follow the market and trade naturally, they might well have been able to continue to go to the market for new capital (Lloyds did this on the day of the HBOS announcement with great success). Of course, this government’s need to be constantly seen to be doing something has triumphed and Peston’s attempt to make the chancellor look important has resulted in the largest one hour crash in banking stocks in living memory on the London market.
We have a regulatory announcement system PRECISELY to stop this kind of activity If material talks take place, a company must announce with absolute clarity what is contemplated so that shareholders are able to judge simultaneously and equally the likely impact on the stock.
Once again, the political imperative to make Gordon Brown look involved and competent has put in jeopardy the already fragile UK banking system and the markets upon which it relies.
Had a hedge fund published this kind of speculation while trading in the stocks, they would now find themselves the subject of an FSA investigation.
Quite. See also Who Told Peston?