Share raiders in sell-off plot to scupper HBOS

The Bank of England today took an unprecedented move in denying rumours another UK High Street bank was in trouble as the Financial Services Authority launched a probe into short selling.

Both moves came as shares in Halifax and Bank of Scotland owner HBOS plunged by almost a fifth within minutes of the stock market opening.

HBOS shares, which closed at 480p last night, hit a low of 400¼p before recovering to 440p - a fall of 40p or 8%.

Other banks including Alliance & Leicester, Royal Bank of Scotland and Barclays were also hit. One senior banker said: "The short-sellers are having an absolute field day."

Chaotic trading at one point saw banks' shares fall more at than any time since Northern Rock was forced to reveal it had asked the Bank of England for emergency funding in September.

The failed bank had to be nationalised and yesterday announced it will cut a third of its 6000-plus workforce.

As the rumours swirled that HBOS had liquidity problems the Bank of England contacted leading news organisations, including the Evening Standard to categorically deny them.

A statement read: "The rumour that the Governor or any other senior member of the Bank's staff has cancelled a trip to the Far East at short notice is complete fantasy.

"Regional visits by the Governor and members of the MPC have been deferred in order to be on top of events in London in the wake of Bear Stearns."

The Governor was due to go to the West Midlands, Sir John Gieve to East Anglia and Rachel Lomax to the South West. At least one speech has been cancelled as a result of today's events.

The statement went on: "Rumours about any UK institution seeking emergency funding are untrue. No meetings have taken place or are scheduled to take place about funding problems with any institution in the UK.

"It is also complete fantasy that Bank of England staff have had their Easter leave cancelled."

A furious HBOS spokesman today said the bank was "very concerned about these malicious rumours". He added: "They are deeply destabilising for the UK financial services system."

Neil Dwane, chief investment officer at fund manager RCM, said: "What is terrifying for financial markets is the power of market rumour.

"There are financial intermediaries who can profit. Having taken Bear Stearns to the cleaners, there will now, arguably, be other market participants who may attempt to ruin others." A client note from Credit Suisse said, that after capital raising last week, HBOS had "no change" in its ability to fund."