Shares digital

There are various ways to kill stock market rumours, and directors of HBOS (HBOS) have come up with their own variation. The bank, created through the merger of Bank of Scotland and Halifax in September 2001, has seen its board members take the decision that a willingness to invest their own money in the company would be more effective than relying on comments by the Bank of England or statements by the FSA – that it is seeking the identity of those who had tried to destabilise the market – as a way to reassure the investment community.

When the shares were being knocked by vicious rumours seven executive directors, led by CEO Andy Hornby, made significant investments. Charles Dunstone, the founder and CEO of Carphone Warehouse (CPW) and one of three HBOS non-executive directors to also plough in their own cash, bought 100,000 shares at 446.5p, a deal worth almost £0.5 million. His investment is especially interesting as he is due to leave the board at this month’s AGM. Hornby bought 92,812 shares.

Although Halifax lost market share to Northern Rock, this underlined its cautious approach to the market. Subsequent developments have confirmed the desire of mortgage providers to rebuild margins rather than chase market share.

The Bank of Scotland was always regarded as one of the more conservative of the banks. Although it has more recently funded entrepreneurs such as Sir Tom Hunter it still enjoys that reputation.

The market quickly reacted to the purchases by the board with the shares rebounding by over 20% to 540p. As a result Dunstone has already made a turn of some £94,000, demonstrating the truth of the adage, ‘he who dares wins’.

Currently the market is forecasting earnings of 98.6p rising to 102p next year placing the shares on a PE of 5.5, falling to 5.3. The shares offer an historic yield of just over 9%.

Shares says: The banking sector is likely to remain out of favour for some months, but boardroom enthusiasm suggests HBOS could work out a sensible investment for the long-term.

The writer holds shares in this company