Fund admits short-selling bank shares

A hedge fund admitted yesterday it had been speculating that shares in Barclays would fall. The admission by Lansdowne Partners that it had been shorting Barclays shares on Friday - a day when the bank lost a quarter of its value - came amid concern that hedge funds could be blamed for the dramatic slide in bank shares yesterday.

Hedge funds have to disclose any short positions - where they sell shares they do not own in the hope of buying them back at a lower price to make a profit - but are no longer banned from the practice after a change to the Financial Services Authority's rules at the end of last week.

The City is now awaiting clarity from Barclays, which fell a further 10% yesterday, and its rivals on whether they will use the new government insurance scheme to limit losses on toxic assets. To participate in the government's insurance scheme, banks would need to sell preference shares to the government or find cash to cover the cost of the guarantee.

Barclays chief executive, John Varley, is thought to be determined not to sell such shares to the government while Eric Daniels, on his first day as chief executive of the newly merged Lloyds Banking Group, said he was continuing a "constructive dialogue" with the government about the wide range of measures announced.

Unlike RBS, Lloyds TSB is not asking the government to convert the preference shares it owns in the combined bank into ordinary shares, which means the taxpayers' stake remains at 44%.

HSBC, the only bank listed on the stockmarket not to have raised any fresh funds, insisted that it would not need government support.

"HSBC has not sought capital support from the UK government and cannot envisage circumstances where such action would be necessary," the bank said.