Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
Independent – The FTSE 100 Index tumbled more than 200 points today after a weekend of financial turmoil in Europe.
Investors took scant comfort from Friday’s backing of a US financial rescue to leave the FTSE 100 Index down almost 5 per cent or 240.5 points at 4739.
Banks were under pressure after German mortgage lender Hypo Real Estate became the latest to receive state aid.
Analysts said the impact of the latest crisis crossed all sectors amid fears of slowing demand.
Halifax Bank of Scotland – soon to merge with Lloyds TSB – plunged 15 per cent in the sell-off, while Royal Bank of Scotland suffered a 10 per cent drop.
The market was also hit hard by hefty falls from heavily-weighted mining stocks after experts warned that the sector’s earnings could almost halve this year.
Times Online – The Tory party conference got off to an embarrassing start today after it emerged that the Conservatives have taken large donations from hedge-fund managers whose firms made vast sums of money from taking bets in some of Britain’s crisis-hit banks.
David Cameron, the Tory leader, has accepted almost £2m from hedge-fund managers who took bets on banks such as Halifax Bank of Scotland, which was forced into an emergency rescue by Lloyds TSB, and Bradford & Bingley, which is itself on the brink of collapse.
The practise of taking down bets on shares, known as short-selling, has now been temporarily banned by the Financial Services Authority, the City watchdog, for all bank stocks. However the revelations will be particularly embarrassing for Mr Cameron and George Osborne, his shadow Chancellor, since they both specifically declined to criticise the activity earlier this month.
A string of the hedge funds have been offered membership of an exclusive dining club reserved for backers who give £50,000 or more to the Conservative party.
Reuters – John Paulson, a U.S. hedge fund manager who gained a superstar reputation with a big bet against the U.S. housing market, was shown holding a 1 billion pound ($1.9 billion) bet against UK banks as short sellers were forced to disclose their positions.
Paulson & Co., run by John Paulson and based in New York, said it had a 1.2 percent short position in Barclays, worth over 350 million pounds, a 1.8 percent short position in Lloyds TSB, and short positions of just under 1 percent in Royal Bank of Scotland and HBOS.
The stakes were unveiled on Wednesday after Britain’s regulator imposed a ban on short-selling financial stocks last Friday, which was followed by similar moves in the United States and elsewhere.
Guardian.co.uk – MEPs will call tomorrow for EU legislation to force private equity groups and hedge funds to disclose unprecedented amounts of information about their activities.
The demand for tougher regulation comes as private equity groups are warning that the enduring credit crunch will reduce new money inflows into their funds by up to 30% over the next two years, and mirrors a call from the UK’s largest trade union, Unite, for hedge funds to be forced to demonstrate that their investment strategies are not perpetuating the current market turmoil.
The union, which has put forward an emergency motion to the Labour party conference on the Lloyds TSB takeover of HBOS, is demanding that hedge funds be more transparent, give greater disclosure and must be subject to risk management.
BBC UK News – "They hunt as a pack and can bring down financial systems" says the Daily Mirror, describing the hedge fund managers widely blamed for bringing down HBOS.
The decision to halt short selling of bank shares – for which hedge funds are widely blamed – earns the prime minister praise from the Independent, which says, "It is almost as if Mr Brown were Chancellor again".
But the Sun likens the ban to ringing alarm bells as the Titanic sinks.
‘Secret deal’
The Financial Times reports that news of Lloyds TSB’s takeover of HBOS left a "mood of melancholic resignation" in Scotland, where HBOS employs 17,000 people.
But the Daily Express says some MPs suspect a "secret deal" may have been done to protect Scottish jobs at the expense of employees in England.
Ahead of the Glenrothes by-election the government does not want to "alienate" Scottish voters, says the Times.
Independent – An unprecedented crackdown on speculators preying on falling share prices began on both sides of the Atlantic yesterday, as Gordon Brown promised to "clean up the financial system" after days of turmoil.
The Financial Services Authority (FSA) banned "short selling" of bank shares from midnight last night, after warnings that the practice helped fuel market turmoil that forced the dramatic £12.2bn takeover of HBOS by Lloyds TSB. This came as the New York Attorney announced his office had launched an investigation into illegal manipulation to profit from short selling. The move is to uncover whether speculators have spread misleading information or acted in concert to purposely drive down share prices.
Wealthy hedge fund traders, heavy users of the shorting strategy, have sparked fury after making millions from the collapse in value of UK banking stocks.
Times Online – Why did HBOS need to be rescued by Lloyds TSB? Where should the finger of blame point?
For many, the answer is clear – Mayfair.
The streets of London W1 house some of the world’s biggest hedge funds, which now stand accused of bringing HBOS and other financial institutions to their knees.
Their weapon? Short-selling, the process of betting that a share price will fall.
Times Online- The Financial Services Authority took the unprecedented step of pressuring Britain’s five biggest banks into supporting the revised rescue capital-raising at Bradford & Bingley last week, The Times has learnt. HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS are understood to have each agreed to sub-underwrite £20 million-worth of the reworked £258 million rights issue.
The banks agreed to step in when Citigroup and UBS, the lead underwriters, could find no one to whom they could lay off some of the risk. Underwriters typically pass on some of the risk to institutions known as sub-underwriters. The FSA, worried that too much Bradford & Bingley stock would be left with UBS and Citigroup, which are already under pressure, decided in the middle of last week to ask the big five to take some of the risk.
