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No doubt some people at MS will receive huge bonuses as a result of this 'smart move' which was really just a fixed bet that paid off.

Mind you, if it had all gone horribly wrong they would probably have still received a bonus, only not quite so big.

The FSA really are a waste of space, and of public money. As a normal earning tax-payer I totally resent all the money I pay in tax going to this old-boys network of idiots who probably struggled to pass maths A-level.

I just wonder how much more of this rubbish the British public are prepared to put up with.

Wykhamist

Not that I don't agree with the overall sentiment re the general impotence of the FSA, but aren't they actually funded by the sector they regulate, as opposed to by the tax payers?

One way to look at is is that the City is continuing to act together against the wider interest of the country - however ... I doubt if the SEC would have acted in any other way in the present circumstances.

Morgan Stanley took on the underwriting of the HBOS issue, but did it do so without a nod and a wink in the direction of 'we'll make it OK for you' from the FSA and the BOE? - I doubt it.

Lets face it we are in deep do do - with an extreme danger of drowning. It is not business as usual at all. Freddie and Fannie have been rescued over the pond and HBOS's rights flopped etc..

Unless everyone keeps the faith we will all see that the 'king has no clothes' and then there will be the terrible slump - that most privately expressed opinion is expecting anyway. So in a sense it is right for the regulators to make sure that everything looks normal.

However, there must be some quid-pro-quo - these city 'experts' cannot expect to maintain their huge salaries and bonuses for wreaking the World's economy. A wind fall tax might be called for - not just for companies but for the individuals too!

Sorry, I checked and you are right there - it is funded by the bodies it regulates.

Maybe that is why it is so useless then...

One rule for them, quite another for us. That surely makes a mockery of the idea of the stockmarket is efficient. Efficient at one thing only - taking our money and redistributing it to the old boys network.

The FSA should be ashamed of itself. No wonder we're in the sorry mess we're in if this is the way it performs its regulatory duties.

Taking all in all, this surely means that

Nervous times for the BoE and Badger Darling as they seek to encourage the banks to re-capitalise

The reporter fails to take into consideration the fact that lead banks regularly hedge deal positions. Just because the lead or leads are the only ones who know exactly how a deal is going, does not mean they are acting on insider information which has an entirely different meaning. They are assuming the risk, therefore, they seek to lay off that risk by hedging which is basic business smarts. This is a non-event and a smart financial reporter wouldn't even be bringing it up. Must be a slow news day.

Joanne600 is right. Not sure what is news here. It's not as if those dealing with MS are widows and orphans who aren't aware that it is underwriting the issue

Its called INSIDER TRADING

So, if I had shorted on Friday, then I would be OK 'cos I didn't know it was a flop?

Re #1 wykhamist


I share your views and sentiments almost entirely - I'm not quite convinced about the "smart move" though.

As for your question about "how much more of this rubbish are the public prepared to put up with". The answer has to be ; as long as our politicians continue to put the wealth of the bankers ahead of any public benefit.

What we need are rules and laws that are clearly written in an understandable manner whose meaning is not open to some fancy lawyers preferred interpretation. We also need a system that does far more to hold politicians accountable for their actions than what we presently have.

As an old collaborator of Morgans - (one of the Rothschilds) - once said - "give me control over a nation's economy and I care not who makes it's laws".

If what you have written is true then it is no wonder the banks and financial industry is in such a mess and this state of affairs will continue until some clear rules and regulations are put in place to stop this nonsense.

The manner and way in which investment banks are allowed to operate appears to be little more than a charade for unscrupulous theives and trickster's to pick the pockets of honest hard working people with the blessing of their cronies, the regulatory authorities.

Now that we have all seen and experienced the full extent of their misbehaviour it is time to tell these miscreants that they are going to be more tightly regulated and to back this up with big fines and imprisonment for individuals as well as the banks.

I wonder what the book value of HBOS Shares is ?

The FT dot com today says Paragon's trading at approximately half its book value, and that Bradford and Bingley is similar (ie trading at half book value).

If this is true, then Shortselling is allowing the Hedge Funds and Investment Banks to buy Pounds for Fifty Pence.

And of course robbing Equity Value from existing Shareholders.

Disgraceful.

I was involved in setting up banking and investment systems in Central European countries in the early nineties and it became obvious to me that short selling shuld be made illegal.

This would reduce the income to pension funds who benefit by lending the stock who receive payment from the short sellers for lending the stock, even if it results in the share prices of the stocks they hold being reduced.

Therefore it is not the short selling it is the lending of stock to the short sellers which could be ended. The pension fund trustees can do this by simply not allowing their stock to be lent. Trusstee approval has to be given before this process is entered into. So, if you are going to achieve anything then stop this practice immediately.

There should also be an investigation into the Contracts for Difference, this is nothing short of gambling and must not be allowed.

I do know that the Inland Revenue does not look favouably on trading by pension funds and they should enforce trading rules with an iron fist.

Ah well, anyone who bought up the rights issue are now quids in with todays rise in price.

So, no one has lost out if they had held on to their shares unti today.

THe only people who may have lost out are those who specualted and jumped ship before the rise. That would make you a trader rather than a shareholder so it's up to you to kow the risks associated with that.

Morgan Stanley, whatever they did, would not know for certain how the market would react. or what future events might intervene. Not exactly a risk free operation, considering the sums involved.
Neither would they have known that there would be the opportunity/market conditions to do what they did.
I can't for the life of me see the point of this story. MS just come out looking like people who know their business. They fulfilled the underwritimg function, which is designed to avoid market turmoil in part, in a skilfull and honourable way as far as I can see. Or am I missing something?

I would be surprised if the Revenue had time to take an interest in Pension Funds trading their Clients assets.

They are probably too tied up in swingeing staff cuts and wholesale office closure to be concerned about Pension Funds !

Aren't they on strike again or something ?

Or am I thinking of another Department ?

#14 TAG

Should Short Selling be made illegal?

Regulation SHO in the states makes 'naked' short selling illegal if it influences the price. (this dates from 2004). In the UK a half heated version was set out earlier this year by the FSA.

In a world market with pan-national financial services industry you would have to find some way of policing short selling and I don't think anything short of reintroducing exchange control would let you do this.

It may be fine and dandy to want to introduce a regulation but the big boys will always get round it - what is the point of regulation that cannot be enforced? In the end we have to face up to this stark fact that these multinational uncontrolled financial services organisations are only subject to market disciplines or we have to take draconian action.

The only practical course of action that I can see is to make sure that any organisation or individual that trades with these concerns is made fully aware that there is no regulation and no protection what so ever.

To this end one would have to consider stopping any such organisation taking deposits from the public and then to stop any organisation taking deposits from the public from trading with such organisations.

Knowledge is power and if their customers had better information they would not deal with them - perhaps! In the end I do not think making anything illegal, such as short selling) is a good idea as it is essentially unenforceable as no sanctions can be enforced - how could the FSA stop MS and D from short selling HBOS rights issue as if they had done so then they might not have underwritten the issue and it would have perhaps caused HBOS to fail?

Robert, you keep harking on about underwriters and selling short. Both points are interetsing but irrelevant to the bigger picture, that being what was the need to raise the extra funds and what is the best way to do it.
With underwriters most of their risk will be passed on to sub-underwriters so if priced correctly its a mugs game.
The windows for selling short are limited and a huge amount of factors are used to calculate the justification of operating that way.
What needs to be addressed which is still ignored by you in particular is where the banks are concerned what drove them to look for exta funds and why allow off balance sheet accounting where no one knows what the true score is.
Even with this hopeless no prudent government we knwo the damage of how much the PFI liabilities are. But with banks, insurance companies and most companies there are literally 2 ses of books so establishing the fair market value is almost unknown.
The one group that should be sorting this out is the FSA but they only know how to close the gate once the horse has bolted.
If they can't see how they have allowed ths mess to continue for so long there is no hope for anyone and we shoudl not be surprised when we get a real implosion by a major company here.
What we should be worried about with the FSA is that it's remit has got lost and it hasn't a clue how to operate effectively.
Every contributer here is indirectly sking the same questions i.e what are the FSA doing about this or that? The answers fellow scribes is absolutely nothing, but the do know how to make a lot of noise doing it.
Yes the FSA is paid for by those it regulates but its rules are inadequate and incapable to handle the ever eveolving market place. Part of which evolves simply because there is a desire to circumvent the present rules.
I say lets have a 6 month review of the remit on teh FSA and get something that is staffed by experienced personel and managed by those who are in short nothing less than poachers turned gamekeepers.
Its the only way to keep up and get on top of what is a total mess.
The result is it might reduce the numbers of folk writing in on issues that all find their source both directly and indirectly with the FSA's unfortunate and costly incopmpetance.
I volunteer to be the first member of the review panel and hope others will join in so the nonsense we have all unnecessarily suffered lasts no more.

"To reiterate what I said yesterday, I am persuaded that neither Morgan Stanley nor Dresdner (which also shorted HBOS) broke the rules."

That's very fair of you Robert, of course there is the presumption of innocence coupled with superior rights and a tap dance routine after the facts makes it trebles all 'round!

As you said it's a pity we couldn't get away with it.

But might this not have backfired, since BBVA are now rumoured to be truffling around HBOS ?

So they could have got it wrong ? Or would they have jumped in and out of the shares quickly enough to make an 'automatic' profit ?

Lies I'm afraid Robert - a load of porkies.

Don't make me laugh with the FSA being kept abreast of the situation and the shorting team not being informed about the situation.

Just like the FSA were 'kept abreast' of the Northern Rock situation, and just like the government being unaware of the Granite fund.

In the past few months I have started to believe the FSA are not a bunch of bungling idiots - but are in fact in league with the big bankers.

Are we saying we trust the honesty and integrity of bankers now? What about the Soc. Gen fraud, or the other recent incidents which clearly show the banks a do not employ trustworthy staff, and are not trustworthy as a set of organisations.

I contracted in a bank recently (about 12 months ago), and I can assure you that when we discovered that the risk figures were being incorrectly calculated, and that the compliance team missed it for 6 months - it was all nicely hushed up and brushed under the carpet.

These are your trustworthy banks - their first concern is profit first, following the rules second.

More dodgy goings-on in the City, to add to all the others.
The FSA has proved itself to be useless since the day it was concieved.
The principal aim of British banks seems to be to enrich their senior staff.
This aim used to be to serve the public and protect its customers money.
The principal aim of the FSA seems to be to enrich its staff.
Customers, investors, depositors...hard luck.
Corrupt? Thats the impression most of us have.

Re: 18 John_from_Hendon

I for one don't accept your premise that nothing can be done to discipline those unscrupulous and largely uncontrolled people who run multinational organisations from misbehaving as they now do. Otherwise we might as well shut up shop now in order to prevent even greater damage being inflicted on the western financial system and it then collapses all together

I agree that under the present rules and regulations it is difficult to identify those responsible for these misdemeanours and to punish them accordingly. However with a few trusted men the regulatory bodies should concentrate on a few organisations (large and small) and that should for the time being have a significant effect. Particularly if those found guilty are given custodial sentences and have their ill gotten gains confiscated as happened to the three Barclay's directors who were extradidted to the USA. The key to success is to concentrate on individuals. This might appear to be harsh or draconian but in reality there is no other option.

To do this the regulators need to identify the problems, introduce a much better governance framework and put in place appropriate rules and regulations to cover this and in an ideal world these would be internationally agreed. For expediency we could start by adopting some of the American rules and procedures because they at least do have have some bite.

A very good idea?

Why not reimpose Exchange Control for all countries, through the UN.

Am I right in saying that the Exchange Control Act was abolished by the new Tory government when they took over in 1979. Was there the 25% Dollar premium applied to any US shre holding. Banks also had to make monthly returns, whatever happened to all the administrators.

The ECA was brought in during a war and surely we are being told that we are in a war now, the war against terror. So, bring in a global Exchange Control Act.

Furthermore, let's have true transparency in the Stock Market. A list ought to be made available of all transactions, who is buying, who is selling, the number of shares bought sold, held, and any futures, options etc.

As for you Robert maybe we ought to be told when you were told something which you then report on and claim as an exclusive.

I have a brilliant way of losing your capital.

Am I right in saying that if you purchase a Gilt Edged stock currently priced at £125 with a maturity date of 2015 then in 2015 the wonderful government will give you £100 guaranteed, no quibble!

Now I know that you will have received your six monthly income payment but for all the income you receive you will be guaranteed to lose £25 of your capital.

You will also have been taxed on your income at the appropriate rate of interest. You cannot of course offset your capital loss against any gains because gilts are exempt from any CGT?

So this is a ticking time bomb because too many inexperienced investors do not calculate the yield to redemption rather than the straight yield. Wonderful things governments who need to borrow money, they have to bid for your savings just like anybody else.

#24 godfreybrown

You may not accept that nothing can be done, as you summarise my view, but without any form of pan-national agreement how can regulators hope to regulate?

I am saying that given that any form of regulation is like pushing a balloon where you push on one side only to find that another unconstrained side bulges out.

I do not believe that it is credible to argue that unilateral control will work with multi-national companies so long as they can move capital around the world without any constraints.

Your information on the UK exchange control seems to be right. I recall having to go before signatories at the Bank of England in the seventies (and having verbatim notes taken of the meeting) just to run a joint-venture with an Italian business where we operated currency offset. Detailed permission was required and was granted. All of this was swept away.

The other side to consider is the value of the huge increase in trade since the late seventies as ask how much of it was due to the removal of the restrictions. The latter point is why I consider that the present politicians and their appointed regulators will never really get to grips with the situation.

The downside of tightening regulation now is that doing so would most probably directly cause more banking failures and deepen the slump.

wykhamist has a slight chip on his shoulder...bbc blogs aren't the place to vent his own social frustrations, particularly on matters which he quite clearly knows little about... cheered me up on a friday afternoon though!

Thursday today, isn't it ?

Actually, the London Stock Exchange can insist on any rules that its Members agree on.

They could forbid Stock Lending.
They could forbid certain types of Short selling.

And their Members would have to ensure their LSE trades complied with those Rules.

It is, especially with Information technology, a very small world.

With the right systems in place, any rules you liked could be enforced.

With the obvious penalty of loss of Membership of the Exchange to any one (company) found exploiting the Rules.

Nothing need be impossible if the right people want it so.

How long before some of the suggestions on this site become government policy. We, the people are the rulers, the power of the internet contributors will prevail.

This is a non-story. It is a standard hedging technique to short prior to a rights issue, because you have already sold some of the inventory you are taking on board.

Also the reason I personally cannot do it is because I am not thousands of different people doing different jobs at the same bank.

But to know it gets the self-righteous brigade out.

PS anyone who shorted HBOS got screwed when it rose at the end of last week.