lehmann [sic] bank is scary

[zippitippitoes]

..oh dear

"if shares were not being sold they wouldn't drop in value. Panic selling will not help anyone."

If investors were inclined to think that way, there would be very few sellers ever, and so prices would always go up. And everybody would make money, nobody would lose money.

It's a classic 'Game Theory' question. And the answer is that people do not work for the common good. They work for what they think is good for themselves. If a HBOS shareholder believes HBOS share value will fall (tomorrow, next week, whatever), he will sell today so as to avoid the loss.

"The Guardian has a (surprisingly) accurate summary here as to the more likely fortunes of HBOS. "

So you reckon the Guardian's hack has a better grasp than the people who are putting their money where their mouth is? Though HBOS share price has shot back up to only 22% down.

Two reasons. Firstly, the volume of shares traded already today is over triple the average daily volume of the last three months. That pattern is usually pretty symptomatic of short selling. Secondly, the fundamentals of HBOS and the news flow around it is at worst neutral and as best positive versus its peers(e.g. RBS and Barclays), however, HBOS shares are down much more than them. On that basis unless HBOS shareholders are more spooked en masse versus their contemporaries in comparable businesses, the only realistic interpretation for this is short selling.

No Upwind - but the Collins Stewart and Vince Cable summaries are pretty apposite.

Thanks for the explanation cestlavie

14:50
*AIG'S $20B FROM NEW YORK ACCORD CONTINGENT ON BROADER RESCU
14:51
*AIG DOESN'T YET HAVE $20B FROM NY PACT, STATE SPOKESMAN SAYS

so how do you think aig is going then

they have denied there is government money on the table yet

Can someone explain what short selling means?

And is this a good time to buy shares?

"the volume of shares traded already today is over triple the average daily volume of the last three months"

That doesn't mean that extra trading is by short sellers. When a company is suddenly talked about very positively or very negatively, it is normal that its shares will trade in unusually high volumes.

Two of the funds I used to manage were trading shares in markets where short selling was not possible, and such spikes in trading volume happened all the time.

"Secondly, the fundamentals of HBOS and the news flow around it is at worst neutral and as best positive versus its peers(e.g. RBS and Barclays), however, HBOS shares are down much more than them."

Are you 100% sure that you know HBOS's fundamentals better than the market? If that were the case, there would be more short selling on RBS and Barclays, not less.

"Short selling" refers to selling shares you don't actually own. You do this by 'borrowing' them from the bank you are trading through. In practice, no shares change hands (between you and bank), but you pay an interest to the bank for every day that passes until you 'close the position' - i.e. buy the shares back.

You could also sell in the morning and buy back in the afternoon, for example, in which case you wouldn't pay interest.

Aero, chipmunk and others affected by Lehman - did you see this:

Barclays seals Lehman deal

Lehman Brothers on Tuesday reached a deal to sell certain parts of its business to Barclays, which had been in talks over the weekend to buy the entire investment bank before it filed for bankruptcy protection on Monday.

The two parties reached an agreement in the New York morning that centres around Lehman?s core US broker-dealer operations, which perform securities underwriting tasks, provide merger advice to lucrative clients, and conduct trading

A deal could also be accompanied by a small capital raising by the UK lender.

Whether other Lehman businesses would be included in the sale, and the price at which the assets would be sold, remained unclear.

Lehman?s European and Asian investment banking divisions have been part of the discussions between the two banks, and employees within those units were anxiously awaiting word on Tuesday as to whether they would be included in any sale, people have said.

The initial transaction, however, could exclude those businesses but allow Barclays to revisit them later. Barclays is thought to be interested in acquiring some of Lehman?s entities based in Europe, but it could also choose simply to hire former employees of the US bank.

www.ft.com/cms/s/0/5c9dcc26-83f1-11dd-bf00-000077b07658.html

Thank you cote.

Sounds bonkers to me!

Thanks CDA. I was aware that news flow around companies does lead to changes in volume. The point I was making is that if you look at the volumes traded vs. their peers they're significantly more in excess of their average daily volumes than their peers.

Similarly, my point was not that I know the fundamentals better than the market. Rather it was that unless you've seen any negative news flow around HBOS vs. its peers (which I haven't) there is nothing to suggest that HBOS is more at risk today than it was yesterday vs. its peers.

More simply, in terms of relative share price performance, I cannot see any rationale reason why HBOS is being hit so hard in comparison to its competitors but I can see several indications that its being sold short.

Chipmunks - thanks for the explanation. Was just slightly puzzled as I thought the one good thing about the Lehman fiasco is that the person in the street wouldn't have money invested in them. Best of luck.

Yes, it's an unusual situation we're in - I'm honestly glad it's not a retail bank in that sense.

Even though this would be pretty dreadful for us, we would still have some savings left whereas if it were say the Halifax, there would be all sorts of people with all their savings in there and no diversification at all.

And we knew there was some risk involved in what we did - just not this much!

"unless you've seen any negative news flow around HBOS"

By the time you see the news, it has already been announced to all traders of the world through Bloomberg, Reuters et al. And way before that there is the grapevine which reaches traders way before any official news is announced.

So no, you cannot expect the share price to move in accordance to what you read in the papers or see on TV.

As everyone who trades the market learns very quickly, it is very dangerous to bet against the market as the market is almost always right.

And in any case, higher trading volume in one stock can always mean one big shareholder decided to reduce his stake. It does NOT mean short sellers have taken over.

I work for Lehmans but am currently on maternity leave and my other half works for HBOS double eeek or what?? Am glad to see a civil discussion here rather than some of the more disturbing ones on other websites with people gleeful that so many people are losing their livelyhoods. It made me so sad although I think I am just still hormonal with having a newborn.

BIL here tonight. He says they will get paid for last month, but they need to go in.

Best thing? BIl will be our manny for a few weeks until he gets another job. Fnatastic!

cthea - if there is a glimmer of hope that they will be paid for the month worked, then dh will indeed go in. We feel in a knid of limbo atm, but today he's been very busy networking and setting up interviews.

We've taken a lot of phone calls today from supportive friends which is nice, despite the grim nature of the situation.

Ach Areo I would be tempted to go in just in case.

He has little to lose right?

I am pleased you have support, It will work out of course you know.

It will be worrying and strange but then it will work out and be alright again.

They've just announced that Barclays are buying the investment banking arm of Lehmans and a couple of other divisions. Does this help any of you guys at all? I hope so.

Aero so sorry you're going through this. Just thought I'd add that I heard that Lehmans has asked permission to pay this months salary so hopefully the liquidators will agree to this. Hope your dh gets work soon.

Think that might be the US operations only though Zebs.