Newspaper article The Evening Standard (London, England)

Footsie Back below 4000 as L& G Short-Sellers Prevail

Newspaper article The Evening Standard (London, England)

Footsie Back below 4000 as L& G Short-Sellers Prevail

Article excerpt


SHARES on the London stock market dropped back below the important 4000 resistance level today for the first time since November as the short-sellers appeared to regain the upper hand in Legal & General.

The life assurer's shares slithered 4.5p to a record low of 40.8p as more than 35 million changed hands. It seems yesterday's reassurance by the company that it does not need a rights issue and was doubling the size of its credit default reserves to [pounds sterling]1.2 billion has missed the target.

Life assurers generally were asked by the Financial Services Authority to stress-test their solvency ratios in the event of the stock market dropping by 60% from its current levels. But some brokers are muttering that if it was carried to the extreme, L& G is already technically insolvent.

The shares have slumped from 128p in the past year as the value of its holdings in equities, government bonds and corporate bonds took a hammering. To make matters worse, L& G has become the target of short-selling, with names such as the hedge funds Lansdowne Partners and Crispin Odey's Odey Asset Management building up substantial short positions.

Among its rivals, Prudential, which has already denied it needs to raise fresh funds, fell 17p to 2621/2p and Aviva shed 93/4p at 2971/4p.

Among the banks, Royal Bank of Scotland shed 1.7p to 19p, disturbed by reports it needs to stump up [pounds sterling]8 billion for insuring against further losses on its portfolio of toxic assets. But Lloyds Banking Group improved 1.8p to 53.3p and HSBC rallied after a sell-off in Asia, rising 53/4p to 5001/4p.

The weakness of financials and big falls on Wall Street overnight undermined confidence in the rest of the stock market, and served to extend yesterday's big losses. Sentiment remains at a low ebb, with investors continuing to fret about the deteriorating banking crisis and global recession, as well as the efficacy of the US Government's stimulus package.

No one is willing to recommend buying shares in this climate. "It would be like trying to catch a falling knife," said one commentator. In the event, the FTSE 100 index dropped back below 4000 with a fall of 80. …

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