Afternoon:
9°c
Aviva was one of the biggest casualties among blue-chips today, falling 15p to 198½p after coming under close scrutiny from Citigroup, which has dropped its rating on the life assurer from hold to sell.
It says that while insurers cannot be labelled the same as banks, because of their lower asset leverage and solid liquidity, there are market levels where even their more defensive virtues are severely tested. The broker points out that Aviva has high asset leverage, not only to corporate bonds (£30 billion) and asset-backed securities (£8 billion) that can "pull to par" but also to equities (£11 billion), property (£4 billion) and loans (£22 billion). That compares with £8 billion of tangible equity.
It adds that Aviva's ratio of capital available and capital required is the lowest in the sector, and the current dividend policy allows no capacity to regenerate the balance sheet from operating earnings. Citi says that if the markets rally, the life assurer could recover rapidly. But it has put its share price in the hands of the market.
"We see it as one of the riskier names in the sector and we lower to sell to reflect this heightened risk profile," it says. The move by Citigroup is likely to add to the uncertainties surrounding the life assurance sector, which has made it the target of hedge funds short-selling the stock in recent weeks.
Even so, Old Mutual firmed 0.5p to 37.5p while Friends Provident put on 0.3p to 66.4p. Standard Life added 4.1p to 165.4p following full-year results. Bank of America Merrill Lynch has raised its rating on the shares from underperform to neutral.
Shares generally were a touch firmer for choice as London took its lead from Tokyo, where share prices were in retreat. The FTSE 100 index fell 21.85 to 3671.96.
Financial and properties led the way with Land Securities adding 9¾p at 356½p while the nil-paid jumped 7½p to 69½p. Admiral jumped 28½p to 920p on further reflection upon yesterday's trading update.
Petrofac celebrated its promotion to the Footsie 100 with a rise of 15¾p to 510p. That coincided with a move by UBS to raise its rating from neutral to buy following recent contract wins. The oil-industry services supplier has been awarded $5 billion (£3.6 billion) of contracts so far this year. That increases the backlog in its core engineering and construction division to a new high and gives good revenue visibility until at least 2011.
New York shares held on to the previous day's sharp gains in volatile trading. But prices closed below their best levels of the day, and the Dow finished up just 3.91 at 6930.40. Worries about the outlook for the troubled financial sector continued to dominate sentiment.
Banks were marked up after positive comments from US Treasury Secretary Timothy Geithner, who said he would do what was necessary to stem the recession. He also pledged to use the promise of federal loans to attract investors to buy distressed assets from banks while offering sellers capital injections. The banks also received a boost from JPMorgan Chase, which said it had been profitable during the first two months of the year.
Tokyo blue-chips drifted lower as the yen advanced on the dollar to undercut exporters such as Sony, while the broader-based Topix index logged its lowest close in 25 years as banks fell. It ended down 3% at 7198.25.
Life insurer NipponKoa tumbled after press reports of a tie-up with Sompo Japan. An industry source later confirmed that the two plan to merge. The Nikkei 225 Average finished down 177.87 points at 7198.25.
Hong Kong shares made gains even though China's parliamentary session closed without any hint of a new economic stimulus package. HSBC stayed flat as its shares went ex-rights. Chinese industrial stocks dropped on news that output growth slowed to 3.8% in January and February from 5.7% in December.
The Hang Seng index closed up 70.87 points at 12,001.53.
