L&G says no exceptional talks with FSA

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At the weekend, the Financial Times said L&G was in talks with the FSA about the amount of money it should set aside to cover defaults in its bond portfolio.

"There are no conversations (with the Financial Services Authority) beyond the usual year-end process," an L&G spokesman said.

L&G shares, which earlier had fallen as much as 22 percent to 38-1/2 pence, their lowest level in more than 10 years, had recovered some of their losses to stand down 7.2 percent at 46 pence.

The shares have lost 35 percent of their value in the past month, reflecting investor concerns that L&G may be forced to raise new capital or cut its dividend to maintain its capital buffer in response to rising corporate bond defaults and falling stock markets.

Analysts say L&G is seen as particularly vulnerable because it has set aside less money than its competitors to cover potential bond defaults.

"We'd expect them to raise their assumptions, but the question is to what level, and what form the assumptions will take," said MF Global analyst Peter Eliot.

"But our view is that things aren't as bad as the shares would suggest. A rights issue is looking at the very pessimistic side of expectations."

Last month L&G failed to provide an expected update on its capital position alongside its full-year sales numbers, exacerbating investors' concerns.

In October, the group said it had a capital surplus of £2.9 billion at the end of September, and estimated that the cushion would fall to £2 billion if stock markets were to drop by a further 30 percent. London's blue-chip FTSE 100 index has lost about 15 percent since the end of September.