Market round-up: L&G short-sellers put the Footsie on downward trail

Mickey Clark
18 Feb 2009

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

The life assurer's shares slithered 3.8p to a record low of 42.5p as more than 30 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 £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 share price has slumped from 128p in the past year after the value of its portfolio of 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.

Rival Prudential, which has already denied it needs to raise fresh funds, fell 17p to 262½p while Aviva shed 9¾p at 297¼p.

Cazenove has dropped its rating on Aviva from outperform to in-line.

Among the banks, Royal Bank of Scotland shed 1.7p to 19p, disturbed by reports that it needs to stump up £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 from a morning sell-off in Asia, which saw it touch a new 10-year low, with a rise of 5¾p to 500¼p.

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 economic 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 touched a low of 3967.4, before reducing the deficit to 33.57 points at 4000.56 — its lowest since November. The Footsie 100 also had to contend with a number of its constituents going ex-dividend, the equivalent of a 10-point fall.

They included property developer Hammerson, down 9¼p at 342p, fund manager Schroders, 18p lower at 737p, BP, off 18p at 474½p, power supplier Scottish and Southern Energy, 35p adrift at 1183p, and mining giant Rio Tinto, losing 13p at 1884p.

Citigroup has raised its rating on Smith & Nephew, down 9½p at 535p, from hold to buy and jacked up its target from 540p to 618p because it reckons the shares look cheap. The broker says fourth-quarter results from the artificial-joints maker provided reassurance that core business areas have remained relatively immune to economic pressure.

Ridge Mining rose 2½p to 56p on the back of an all-share offer from Aquarius Platinum, down 6½p at 184½p. Aquarius will offer one of its own shares for every 2.75 Ridge ones. The deal values Ridge at 69.4p a share, or £63.8 million.

Credit Suisse picked a bad day to lift its rating on Dana Petroleum, down 22½p at 937½p, from neutral to outperform. It also raised its target from 1098p to 1202p.

This follows hot on the heels of Dana's move to buy Bow Valley Energy and increase its credit facility.

Carillion shaded ¼p to 226¼p despite winning a £550 million joint-venture contract for the Al Muneera development in Abu Dhabi. Al Muneera forms part of the £10 billion Al Raha Beach Development.