HBOS shares continue to slide

Shares in Halifax Bank of Scotland (HBOS) continued to slide today as the lender cemented its position as the stock market’s biggest casualty from the Lehman Brothers collapse.

HBOS stock dived nearly 14% today, following a near 18% plunge yesterday after Lehman filed for bankruptcy protection. It means the bank’s share price has fallen by more than a quarter in less than two days – wiping £4bn (€5bn) pounds off the group’s market capitalisation.

Other banks have also been on the receiving end of some severe punishment amid the turmoil, with rival banks Barclays and Royal Bank of Scotland (RBS) also posting double digit percentage falls since markets opened yesterday.

Banking analysts said fears of a “fire-sale” of Lehman’s mortgage-backed securities that would slash values of other banks’ holdings and lead to more hefty credit crunch write downs was helping to drive the sector sell-off.

In the case of HBOS, analysts said it needs to refinance more than £100bn (€125bn) of funding during the coming months, something which could be more challenging after the blow to confidence from the Lehman collapse.

Banking analyst Bruce Packard, at broker Pali International, said: “The fact that HBOS has been sold off suggests people are worried about the funding.

“But this is quite hard to quantify – it’s looking like banks are all being marked down as a whole.”

He said credit default swaps – which effectively measure an institution’s debt risk – had risen in the case for HBOS.

Alex Potter at Collins Stewart said he estimated HBOS’ gross refinancing to be £127.9bn (€160bn) using last available data at the end of 2007.

But he said the group’s net exposure would drop below £40bn (€50bn) after taking into account normal short-term loan repayments it was able to make and £60bn (€70bn) of liquid assets within the group.

Mr Potter said: “The company had no apparent liquidity issues during the first quarter of this year, the period which this amount relates to, but we do believe the position currently is of a similar quantum.”

Mr Potter concluded: “We don’t believe HBOS has a liquidity issue.”

But he warned: “A Lehman fire-sale of assets could well generate (further significant mark-to-market impairments).”

Barclays and RBS could be much more exposed to this than HBOS, according to research from Mr Packard.

His data says Barclays has the largest exposure to US investment banks, asset managers and hedge funds of the big UK banks. Just under 25% of Barclays loans with that sector, compared to around 13% for RBS and less than 5% for HBOS, he said.

Mr Packard added: “A fire-sale of (Lehman’s) structured credit assets... could force UK banks to recognise more losses.”

A spokesman for HBOS said the group was “very confident” about its funding profile, adding that it had £258bn (€324bn) of retail deposits.

He said: “We are the country’s largest savings institution and therefore have more retail deposits than any other UK bank.

“The credit crunch has been going on for over a year, and during that period we have demonstrated the sheer resilience of our funding franchise.

“We continue to access the wholesale markets whenever we choose to do so.”