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Shares in Legal & General fell 2.5p to a record low of 47p today amid growing speculation that it may need to tap shareholders for between £750 million and £1 billion, or cut the dividend.
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 prices and stock market.
In other words, it needs enough cash, or assets, in reserve to met 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 £2.5 billion. 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 stock market values from the current levels.Others to suffer included Prudential, 7p cheaper at 313¾p, and Aviva, off 12p at 329¼p.
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.
But the losses were not as bad might have been feared, and the FTSE 100 index managed to restrict its deficit to 18.33 points at 4171.26.
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 trade 1.9p higher at 63.3p as more than 100 million changed hands. On Friday, they fell more than 30%, and they have lost 80% 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 banks, was still left nursing a fall of 0.6p to 21.2p while Barclays shrugged off opening losses to trade 3.5p dearer at 104p after touching 92.5p.
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 Lehman Brother's US arm.
Land Securities drifted down 4½p to 638½p after the UK's biggest property developer admitted it was considering launching a £750 million rights issue.
During the past couple of weeks, biggest rivals British Land, 5¾p better at 466¾p, and Hammerson, 2¾p softer at 397¼p, have raised almost £1.5 billion to combat growing debt levels and the threat of breaching their banking covenants.
UBS has begun coverage of oil explorers Tullow, 8p better at 719p, and Soco International, 17p ahead at 1177p. It has started with a buy rating on both companies and an 1830p target on Soco.
UBS has raised it rating on BT Group, up 0.6p at 99.6p, 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.
