Legal and General shares hit by funding concerns
A report in today's Financial Times has upset investors in Legal and General with the shares falling to a ten-year low before recovering to close nearly 9% lower. The report in the Financial Times indicated the group was in talks with the FSA regarding an additional allocation of funds required to cover potential defaults on its bond portfolio.
The company has responded to the speculation and confirmed that talks were held with the FSA but were nothing out of the ordinary and purely a matter of course regarding year-end figures. However, there is speculation in the markets that the company may be forced to launch a rights issue or cut the dividend to retain cash. This has been a very difficult period for insurance companies across the world as the value of their investment funds have fallen substantially over the last 12 months. We have also seen a number of insurance property funds suspended redemption rights for unit holders in order to try and retain some kind of orderly market.
The FSA has been monitoring the insurance sector very closely of late, looking for signs of trouble and potential funding issues. While these talks between Legal and General and the FSA appear to have been fairly informal, speculation is rife with regards to insurance companies and potential fundraising issues.
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