'Banks not short-sellers to blame for declines'

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Banks are to blame for their massive share price falls and not short-sellers, hedge fund bosses told MPs today.

In a Treasury Select Committee grilling, top executives of four of the UK's biggest hedge funds denied driving down bank shares or profiting at the expense of the banks and the UK taxpayer, which now owns substantial chunks in major banking groups.

Today's hearing comes amid reports that US hedge fund manager Paulson & Co made profits of at least £100 million by "shorting" part-nationalised Royal Bank of Scotland.

The taxpayer is already facing multi-billion pound paper losses on its stake in RBS after the bank's share price was decimated in recent weeks.

Short-sellers have been accused of compounding bank share falls, with the recent lifting of the short-selling ban feared to have exacerbated declines.

Short-selling sees investors - typically hedge funds - borrow and sell shares in the hope of buying them back in the future for less, pocketing the difference as profit.

But hedge fund managers sought to defend the industry in the face of mounting criticism over their activities and the part they have played in the financial crisis.

Stephen Zimmerman of hedge fund NewSmith Capital Partners suggested the banks themselves were responsible for their mammoth stock declines.

"You can see the huge destruction of wealth that has taken place in these companies and I do not believe that it's down to short-selling of their shares," he said.

MPs also questioned if it was "only a matter of time" before we saw a repeat of the Bernard Madoff fraud on these shores.

However, the hedge fund bosses sought to reassure that UK regulation was tougher in the UK and would help to protect against a similar crisis.