By Nick Clark
Tuesday, 24 June 2008
The American hedge fund group Harbinger Capital Partners revealed that it has made a significant bet on HBOS's price falling, while its UK counterpart GLG admitted it is targeting the rival mortgage bank Bradford & Bingley, as investors were forced yesterday to disclose their short positions to the market for the first time.
The Financial Services Authority shocked the trading community a fortnight ago when it announced that investors would be compelled to disclose short positions of more than 0.25 per cent of share capital in companies carrying out rights issues.
The announcements started on Friday, and continued yesterday with 20 investors, predominantly hedge funds, disclosing short positions in seven companies that are in the process of carrying out rights issues.
A spokeswoman for the FSA said the regulator was happy with yesterday's results: "Companies have been making disclosures, and this further transparency will help the market."
The most prominent two announcements related to UK banks, which have turned to shareholders to bolster their capital in recent weeks in the wake of the credit crunch.
Harbinger Capital Partners, run by the former Barclays Capital trading boss Philip Falcone, revealed that it held 3.29 per cent of HBOS's market capital on loan. Harbinger is a US fund that focuses on distressed investment situations, and its HBOS position is valued at about £348m.
GLG Partners, the UK hedge fund that listed in the US last year, said it had taken more than 7 per cent in Bradford & Bingley.
John Godden, a managing partner at Alternative Investment Solutions, said these positions were "chunky", but added: "They are ... not irregular. There is much more money being put to work by hedge funds now than several years ago, so inevitably the plays are larger."
The FSA said short selling, which profits from a stock's fall in value, was a legitimate practice, but added that the sensitivity of share prices around the time of a rights issue left them vulnerable to market abuse.
Critics complained that the regulator had not opened the issue up to enough consultation, and said the move had been politically motivated.
Mr Godden said it was unsurprising that so few funds had announced short positions. He said that many would have unwound their holdings this week. "Now it means those that haven't can be traded against," he added.
The regulator has a market abuse team that will be actively monitoring for companies who have not disclosed their short positions. Several announcements came in late. The FSA spokeswoman said: "We will probably just have a little word to find out what's going on, but nothing more than that."
It emerged yesterday that only three companies still hold short positions in HBOS, the bank that kicked off the debate after a sharp fall in its share price in March was partly blamed on short selling. The FSA was convinced at the time that the bank had fallen victim to market abuse, but yesterday admitted it had failed to find sufficient evidence to back up the claims.
Beyond Harbinger, HBOS is being shorted by Meditor Capital Management, with 0.30 per cent, and Lansdowne Partners, with 0.58 per cent. HBOS's shares fell 4.25 per cent to 270.25p yesterday, below the group's rights issue price.
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