Investors are bailing out of insurance group Aviva in the wake of rival Legal and General's plunge into the red.
L&G lost £1.49bn in 2008 once £1.2bn worth of provisions for credit defaults is taken into account, and also cut its dividend by more than expected. This turned the spotlight on Aviva and the state of its own balance sheet. Ironically, Aviva's shares were also hit recently when it decided against cutting its dividend, which analysts queried in the light of such difficult trading conditions.
It does seem Aviva loses either way, as far as the market is concerned. So while L&G is currently 1p lower at 41.8p, Aviva - which is hogging the airwaves to tell us Norwich Union is changing its name - has lost 30p to 237p. This makes it the biggest faller in the leading index at the moment, although to be fair, part of the drop is due to Aviva's shares going ex-dividend.
Back with L&G, Panmure analyst Barrie Cornes commented:
"The cut in L&G's dividend was expected by some and is probably as a result of the impact on Aviva's share price following its maintenance of its dividend despite capital concerns. The final dividend of 2.06p (-50%) makes a full year dividend of 4.06p (-32%) and probably makes sense given the need to preserve capital but is disappointing considering it was not that long ago that L&G embarked upon a £1bn share buyback.
"The outlook statement talks about a difficult operating environment and the need to preserve capital by restricting new business sales and concentrating on low capital intensity products. This echos comments made by Prudential and Aviva in the last few weeks and seems a logical response to the market conditions."
Overall the market is edging higher again after yesterday's dip.The FTSE 100 is up 17.74 points at 3929.20.
Hedge fund group Man is up 6.25p at 207.5p ahead of a trading update tomorrow. It said last night its key AHL fund was down just 0.97% on the week. Banks are also better, with Barclays up 1.2p to 119p and Lloyds Banking Group 1.6p higher at 59.6p.
Mining group Rio Tinto rose after the Australian competition watchdog gave the go-ahead for the company's controversial $19.5bn investment from China's Chinalco. The deal still needs the approval of the Australian treasury, which will be based on a foreign investment board review. This is not likely to conclude until the end of June. Evolution Securities said:
"While today's decision removes a minor obstacle to the Chinalco-Rio Tinto tie-up it is by no means the main event with the Foreign Investment Review Board and shareholder vote much more important. In recent days the thinking process has moved forwards with many different potential transactions being reviewed including rights issues and other tie-ups with the likes of BHP Billiton, amongst others. At current prices and given the uncertain future - particularly on the commodity demand and price side of the equation - we view the recent rally as a strong selling opportunity, only enhanced by the recent run-up in sterling given the group's effective dollar valuation."
Back among the fallers, techology business Smiths Group slipped 68.5p to 753p despite a 17% rise in half year profits and comments that it expected full year figures to be in line with expectations. Traders were concerned by signs of weakness in the detection business and about the size of its pension deficit.
