Morgan Stanley’s decision to take a short position in HBOS, whose £4bn rights issue it had underwritten, was cleared by City regulators yesterday.

The Financial Services Authority is satisfied that the decision to take the short position was made by the investment bank’s trading desk entirely separately from the underwriting department, which had inside information about the performance of the issue. Morgan Stanley is said to have kept the watchdog informed of its intentions throughout the process.

The investment bank surprised the market on Monday by declaring a 2.35 per cent short position in HBOS taken out on Friday, the day the rights issue closed.

HBOS’s shares had traded below the 275p rights price all morning but they jumped soon after the offer closed at 11am as short sellers started covering their positions. Better-than-expected results from Citigroup in the US added to demand for the shares as long investors sought exposure to the banking sector. The shares continued to rise, closing up 5 per cent at 282p.

Morgan Stanley’s trading desk decided to sell shares it did not own to satisfy the demand, which might have evaporated by Monday if there had been bad news on the financial sector. The bank’s trading desk also knew that Morgan Stanley was going to be on the hook for a large chunk of the £2.6bn of unsold HBOS stock.

The episode would not have come to light if the FSA had not introduced new rules forcing holders of short positions of more than 0.25 per cent in companies conducting rights issues to disclose their bets.

It was widely believed in the market that the issue had received a low take-up because HBOS shares had traded below the rights price in the crucial few days before the closing date. Barclays had revealed earlier on Friday that its offer of £4bn to existing shareholders had received a take-up of only 19 per cent.

The bank had not shorted HBOS’s shares at any time during the rights issue process, despite being allowed to do so, though it shorted other banks as proxies to hedge its exposure.

Dresdner Kleinwort, the other underwriter of HBOS’s rights issue, has not declared a short position in the bank

HBOS shares fell 1.3 per cent yesterday, in line with the sector, to close at 261p.

>News reported by The Independent

Banks have been given another six months grace to put off dealing with customers who want their overdraft charges refunded.

The Financial Services Authority (FSA) has extended a decision which it first put in place a year ago.

The FSA said it had done this to help the courts decide the fairness of bank overdraft fees.

Bank charge campaigners said they were not surprised, but argued the situation was grossly unfair to customers.

‘Unhappy’

“It’s about time that there was some reciprocal obligation on the banks to stop their enforcement procedures” Marc Gander, Consumer Action Group

It is thought that tens of thousands of bank customers have had their complaints put on hold pending a resolution on the legality of overdraft charges.

Marc Gander, of the Consumer Action Group (CAG), said banks should be stopped from continuing to levy overdraft fees on customers who had lodged complaints.

“It’s about time that there was some reciprocal obligation on the banks to stop their enforcement procedures,” he said.

“They should be stopped from defaulting people on disputed sums and instructing debt collection agencies on a matter which the banks are likely to lose,” he added.

However, the consumers’ association Which?, which has also been campaigning on the issue, described the waiver as a necessary evil.

“Scrapping it won’t get people their money back – only the banks can do that by conceding defeat and paying up instead of continuing to string out the process,” said Louise Hanson of Which?

Hardship

The FSA explained that it was extending the suspension of its normal rules, which require banks to deal with complaints promptly, because the High Court has still not decided if bank overdraft charges are unfair or not.

Banks “will not be required to handle complaints relating to unauthorised overdraft charges within the time limits set out in the dispute resolution manual,” the FSA said.

The regulator also pointed out that it had made its guidance to banks on dealing with hardship cases more explicit.

Defining hardship as an income “insufficient to cover reasonable living expenses and meet financial commitments as they become due,” it said that banks might deal with customers in this situation by waiving charges in the future, or not enforcing past ones if the debt itself consisted of previous overdraft fees.

Despite this, another bank campaigner, Martin Lewis, said the waiver extension was a “kick in the teeth”.

“It’s nearly a year since the FSA first kiboshed reclaiming, and people are still sitting on their hands, unable to try to reclaim money,” he said.

“How long are people expected to wait? Another six months? Until it goes to the Court of Appeal? The House of Lords? The European Court?” he asked.

More hearings

The FSA says it will review the waiver again before it expires at the end of next January.

Meanwhile the general stay on new cases being dealt with in the county courts and with the Financial Services Ombudsman (FSO) is also still in operation.

A second round of High Court hearings involving the banks and the Office of Fair Trading (OFT), which may finally decide if bank charges are fair or not, is expected to start before the end of the year before Mr Justice Andrew Smith.

Earlier this year he ruled that the OFT had jurisdiction in the matter, and he has recently been asked to rule if fees levied under previous bank terms and conditions can also similarly be assessed by the OFT.

But any appeals on the issue of the OFT’s jurisdiction, or the fairness of the fees themselves, could drag out the issue far into next year

News reported by The BBC

Many mortgage advisers give poor advice to customers, according to research by the consumers’ association Which?

Its researchers posed as customers when visiting 50 banks, independent advisers and estate agents.

They found that just four gave advice to an acceptable standard, with 41 failing to provide at least one key piece of information.

Which? said many advisers appeared more interested in selling insurance rather than giving tailored advice.

“Too many of the advisers that we visited took a ‘one size fits all’ approach or seemed as concerned with selling an insurance policy on the side,” said Martyn Hocking, editor of Which? Money.

“There are still more than 3,000 mortgage deals out there, and the difference in cost can be thousands of pounds a year, so it’s vital people do their homework and choose their adviser with care.”

Which? said it had reported the mortgage advisers that performed poorly to the Financial Services Authority (FSA).

Regulations

The Which? researchers visited advisers in England and Scotland between February and April this year.

“Although there was a general failure among mortgage advisers to give acceptable mortgage advice those that performed best were independent mortgage advisers” Chris Cummings, Association of Mortgage Intermediaries

Of these, 24 were banks or building societies, 13 were estate agents and 13 were independent mortgage advisers.

Which? said 41 of them failed to give the researchers all the information required by the regulations of the FSA.

This meant they failed to say if their services involved giving advice as well as information, they failed to show the customers an initial disclosure document, or they failed to give them a “key facts” illustration.

Only four managed to do these things while also checking if the customers could afford the mortgage, explaining properly the type of deal on offer, and then advising if it was suitable or not.

Two-thirds of the advisers tried to sell the researcher an insurance policy at the same time, which Which? claimed was usually unsuitable for the customer.

‘Not typical’

The Association of Mortgage Intermediaries (AMI) said people needed to realise that there is a clear difference between an independent adviser and a salesman in bank or building society.

“Independent mortgage advisers provide advice that is wholly focussed on the individual consumer’s needs,” said Chris Cummings of the AMI.

“In contrast, banks and building societies may offer only generic information.

“The study found that although there was a general failure among mortgage advisers to give acceptable mortgage advice those that performed best were independent mortgage advisers,” he added.

But a spokesman for the British Bankers’ Association said the researchers’ experience of advice in bank branches was not typical.

“The Which? survey covered only 19 bank branches and we do not accept that the low standard of service reported by Which? reflects the overall level of service offered by bank mortgage advisers,” he said.

“Clearly if a customer feels that the adviser has been unable to answer their questions satisfactorily or is not providing the high standard of advice that they should be getting, they should take this up as a formal complaint with the bank concerned.”

No improvement

David Elms from unbiased.co.uk, which is the website of the industry body for independent financial advisers (IFAs), stressed the importance of taking independent advice.

“Whole-of-market IFAs are the best-positioned of all advice types to serve consumers’ needs when it comes to mortgage advice,” he said.

“As the housing market has begun to slow we have continued to see consumers putting their faith in IFAs to advise them on how to finance their home loans.”

At the beginning of 2007 similar research by the FSA found that only one-third of mortgage advisory firms could show they had given their customers suitable advice.

News reported by The BBC

Close Brothers, the UK merchant bank, has pledged to appeal after the financial regulator slapped it with a record £4m fine for alleged market abuse at one of its subsidiaries.

The Financial Services Authority (FSA) handed down its highest ever censure for a regulated company to Winterflood Securities, Close’s market making arm, over share dealing in a company listed on London’s Alternative Investment Market in 2004. Two Winterflood traders have also been named in the FSA’s preliminary judgement, and have been handed fines of £200,000 each.

Close yesterday referred the regulator’s decision to the Financial Services and Markets Tribunal (FSMT), an independent body that oversees the FSA’s decisions. “With the support of Close Brothers, Winterflood has vigorously contested the FSA’s allegation and, after careful consideration and on legal advice, has exercised its right to refer the FSA decision to the FSMT,” the financial services group said.

Should the FSMT overturn the decision, the FSA’s enforcement division, run by Margaret Cole, can appeal to reinstate the original ruling. Should the independent body reject the motion, the FSA can take the case to the Court of Appeal, a spokeswoman for the regulator said today.

The fine relates to dealings in Fundamental-e Investments, a computer components company listed on AIM. Winterflood acted as a market maker for the stock and “executed the majority of the relevant trades” under investigation by the FSA, Close said. The FSA alleged that Winterflood “failed to have appropriate regard to warning signs and failed to ask questions about the propriety of the third-party trades in Fundamental-e executed by Winterflood, and thereby committed market abuse”. The regulator alleged that Wins and its traders unwittingly committed market abuse rather than deliberately.

The FSA started investigating Fundamental-e in July 2004 over fears the stock had been ramped after the shares spiked from just under 4p at the start of the year to almost 12p, before dropping 32 per cent in a day. Today Fundamental-e is worth less than a penny.

The case focuses on the involvement of a small stockbroker called SP Bell. The group was too small for Winterflood to normally deal with so Pershing Securities, the clearing and settlement business, acted as a middleman to trade in Fundamental-e stock. SP Bell fell into administration that year and it emerged that it had invested £10m of its clients’ money in Fundamental-e without their authorisation. The head of SP Bell, Simon Eagle, turned out to be the chairman of Fundamental-e as well and his father was the computer group’s largest shareholder.

The clients then refused to pay for the shares, which were left on Pershing’s books. After the scandal erupted, Pershing sued Wins saying it had been left out of pocket by the dealings and Wins should have checked the trades were authorised. The companies settled out of court in 2006.

News reported by The Independent

The UK financial regulator and the oil futures exchanges have mounted a robust defence of their controls in front of a government committee, and rejected claims that speculators were behind the soaring price of oil.

Yesterday marked the first meeting of the Treasury Select Committee called last month to examine oil, especially fears that energy traders were driving up the price to record levels.

John McFall, the chairman of the committee, announced last month there was “a real problem here. We really need to take some action because there is $260bn [£130bn] of speculative money in the oil futures market”. The move comes under increased political pressure from the US to crack down on wrongdoing in the market.

The committee heard the testimony of a series of experts including a US professor, an energy analyst, and the chief economist of Shell. Those who came in for the hardest grilling were senior managers at the Financial Services Authority and the ICE Futures Europe, London’s oil futures exchange. The experts generally agreed traders were not manipulating the market.

Sir Bob Reid, the chairman of ICE Futures Europe, said: “As far as we’re concerned, this market is orderly, there’s no absence of information and no sign of manipulation or anything that could constitute market abuse.”

The director of the markets division of the FSA, Alexander Justham, agreed, saying the regulator had launched a “number of investigations in recent years, but there is not huge evidence of market abuse. This is a global phenomenon”.

The committee comes in the wake of a focus on oil speculation in the US, where politicians including Barack Obama and John McCain have expressed concerns traders were ramping prices.

The US House of Representatives passed legislation last month to hand the energy regulator, the Commodity Futures Trading Commission (CFTC) increased powers – including emergency powers – to curb excessive speculation in energy futures markets.

Bart Stupak, the head of the House of Representatives energy sub-committee, warned of the “London loophole” in ICE’s light-touch regulation from the FSA, which contrasted with the strict limits set on its US counterpart, the New York Mercantile Exchange.

The CFTC has since called on ICE to adopt the same limits. The FSA, which can veto the move, is waiting to hear the detailed proposals before it responds, and would not be drawn on its initial conclusions.

Sir Bob rejected all the talk of a “London loophole,” instead calling it a “reef knot” pulled tightly by regulators on both sides of the Atlantic. He added that increased regulation would be no problem. “We have no difficulty with limits, but we don’t see the purpose of them, as we supervise our members every day and throughout the day.”

Robert Weiner, professor of international business, public policy and public administration, told the committee speculators had not created an oil bubble. He said: “Volatility isn’t higher in the oil markets, prices are higher. Volatility is lower than in the recent past.”

Dr Steven Fries, chief economist at Shell, agreed, saying the rise was driven by underlying trends rather than short-term speculation. “We anticipate continued strong demand on the back of this phenomenon,” he added. The price rises were put down to the weakening dollar against the euro, geopolitical issues in Nigeria and Iran as well as policies in the Middle East.

News reported by The Independent

Three brokers have been banned in a week by the Financial Services Authority as it continues a crackdown.

Sadia Nasir, a director at London Mortgage and Financial Services, was the first broker to be banned and fined for submitting fraudulent applications.

Robin Knox, director at Darlington firm Mortgage and Property Services Limited, was banned and fined over the way the company recommended sub-prime loans.

A former shares broker has also banned in the past week.

Thirteen mortgage brokers have now been banned by the FSA this year which is conducting a high-profile clampdown.

‘Serious and blatant’

Ms Nasir’s firm traded as House of Finance.

“Perpetrators will increasingly find themselves facing bans, heavier fines and having to disgorge illicit fines” Margaret Cole, FSA

The FSA said that she submitted seven mortgage applications containing false information about her employment and earnings which were supported by falsified documents.

In four cases she entered her own bank account details on clients’ mortgage applications and the FSA said she withheld information from its investigators.

“Ms Nasir’s actions were particularly serious and blatant, and she poses an immediate risk to lenders,” said Margaret Cole, director of enforcement at the FSA.

As well as banning Ms Nasir, the watchdog fined her £129,000 – which it hoped would act as a deterrent and claw back any illicit profits.

Ms Cole said the case was an example of how the FSA would “intensify” its crackdown on mortgage fraud.

“Perpetrators will increasingly find themselves facing bans, heavier fines and having to disgorge illicit fines,” she said.

‘Unsuitable advice’

In an unrelated case, mortgage broker Robin Knox, who is based in the North East of England, was banned after the FSA found he had exposed 500 customers to the risk of receiving unsuitable advice.

Mr Knox, managing director of Mortgage and Property Services Limited, was also fined £17,500.

The FSA said the firm’s advisers recommended unsuitable mortgage contracts to customers, such as sub-prime deals when mainstream mortgages were available.

Mr Knox also failed to ensure that the levels of fees were made clear to customers.

“We are continuing to find instances where mortgage brokers are unwilling or unable to maintain the standards we require,” said Jonathan Phelan, of the FSA.

The watchdog has also taken action against a former shares broker for selling high-risk shares to customers without their consent and using “unacceptable” sales tactics.

Baljit Somal, who was employed by Square Mile Securities Limited from October 2002 to September 2007, was banned and fined £16,000.

News reported by BBC