Stock market report: Monday close

By Mickey Clark for MailOnline
Updated:

 

Shares in Legal & General fell 5.2p to a record low of 44.3p today amid growing speculation it may need to tap shareholders for between £750m and £1bn, or cut the dividend.

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Taking stock: Latest prices from the exchange

A growing number of brokers claim the insurer and investment-services provider needs extra cash to protect its solvency levels from the ravages of falling bond and stock prices.

In other words, it needs enough cash or assets in reserve to meet its obligations to customers despite write-offs in asset values.

JPMorgan has always insisted L&G is the most likely life assurer to issue a profit warning, and strengthening its reserves could cost as much as £2.5bn.

Rival Keefe, Bruyette & Woods warns it sees an increased likelihood of a 'capital event' - fundraising to the rest of us.

Dealers say that, according to guidance laid down by the Financial Services Authority, L&G's reserves would have to withstand a 60% drop in stockmarket values from current levels. Others to suffer included Prudential, 25¾p cheaper at 295p, and Aviva, off 24p at 317¼p.

There was little for stock-market investors to cheer when trading resumed today after the weekend break. They were greeted by news that the Japanese economy had shrunk at the fastest rate for 30 years.

On top of that, Wall Street was closed this afternoon for Presidents' Day. Against such a gloomy backdrop, share prices in London had only one way to go - down.

The losses were not as bad might have been feared, though, and the FTSE 100 index managed to restrict its deficit, closing 54.8 down at 4134.8.

Naturally enough, the initial focus of attention was Lloyds Banking Group. The shares eventually uncrossed at 52.8p, with the price touching a record low of 48p as the prospect of all-out nationalisation loomed, should the bank be forced to ask the Government for more funds.

The shares later rallied to reduce the deficit to 5p at 56.4p as more than 100m changed hands. On Friday, they fell more than 30%, and they have lost 78% of their value since the merger with HBOS was first pressed on the company in the autumn.

Dealers have attributed the rally to short sellers closing their positions and a charge by bargain-hunters, who now see the shares as little more than option money.

That has not stopped Panmure Gordon from slashing its target for Lloyds from 180p to 80p, although it claims the losses from HBOS were not entirely unexpected. It dismisses the prospect of full nationalisation of the bank and has repeated its hold rating.

Royal Bank of Scotland, the other bank maintained in the Government's golden circle of bailed-out lenders, was still left nursing a fall of 1.4p to 20.4p, while Barclays shrugged off opening losses to trade 3.4p dearer at 97.1p.

UBS has raised its sights for Barclays from 90p to 110p, pinning its hopes on the resilience of Barclays Capital's underlying earnings and the increased contribution from the recently-acquired US arm of Lehman Brothers.

Land Securities drifted down 21½p to 621½p after the property developer admitted considering a £750m rights issue. During the past couple of weeks rivals British Land, 10¾p cheaper at 450¼p, and Hammerson, 12¾p softer at 387¼p, have raised almost £1.5bn to combat growing debt and the prospect of breaching banking covenants.

UBS has begun coverage of oil explorers Tullow, 17p worse off at 710p, and Soco International, 25p ahead at 1185p. It started with a buy rating on both companies and an 1830p target on Soco.

Royal Dutch Shell dipped 24p to 1706p after the tap was turned off in Nigeria, where the group produces 188,000 barrels of oil a day, equivalent to more than $8m a day.

UBS has raised it rating on BT, down 0.6p at 98.4p, from sell to neutral with a 95p target in the wake of last week's gloomy trading update. The broker reckons the shares have fallen far enough but warns there are still too many risks to get excited.

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Tomorrow's Agenda

With swathes of gloomy economic data pouring out of the City, inflation has unsurprisingly slipped down the Treasury's list of concerns. The official measure of inflation, the Consumer Prices Index, is released and is expected to show price pressures easing again last month. In December, the CPI fell to 3.1% from its peak of 5.2% last September.

Asda owner Wal-Mart reports fourth-quarter results. The UK's second-biggest supermarkets chain is benefiting as shoppers trade down from more expensive rivals. Meanwhile, investors will find out whether its American owner is still among the US's most resilient stores. Sales growth slowed sharply in January, while last week it said it was axing 800 staff.

Domino's Pizza is making a habit out of profiting from others' misery. The delivery chain, which posts full-year figures, has reported soaring sales as consumers cut costs by shunning restaurants and ordering in. The bad weather also helped boost demand as Brits stayed in and had food biked to them.

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