Member Article

Legal & General surges following strong results

Markets had largely been hesitant ahead of the US Federal Reserve’s interest rate decision yesterday, which subsequently announced there would be no change to the current monetary policy. Ben Bernanke reiterated that interest rates would be left negligible until late 2014 (at the earliest), and cautioned that whilst the financial strains had eased recently and the unemployment situation had improved, downsides risks remained for both. With no mention of “Quantitative Easing 3”, there was little to grab news headlines but the gold price suffered significantly as it would be a natural beneficiary of more monetary stimulus.

What did occupy financial press was however the revelation that the US banking sector endured the recent round of stress tests largely unscathed. The Federal Reserve announced that 15 out of 19 banks were able to maintain capital levels above the regulatory minimum, when modelled conditions that were more severe than the last recession (i.e. unemployment rate of 13%, a 50% drop in stock prices and a 21% decline in house prices). The onerous conditions laid out in the tests drew various comments that the banks are now much safer than they were before the 2007/2008 financial crisis. There were however a few exceptions with Ally, MetLife, SunTrust and (most significantly) Citigroup, falling below the 5% core tier 1 capital ratio. The news was however sufficient to support financial stocks, and led to a 1.8% gain in the S&P 500 yesterday.

UK unemployment increased by more than forecast in February, with unemployment benefit claims increasing by 7,200 from January to 1.612 million, according to the Office for National Statistics. The overall unemployment rate held at 8.4% in the three months to January, the highest since 1995.

Insurers were outperformers on the day, with Legal & General one of the biggest gainers upon releasing forecast beating 2011 results and a dividend hike of 35%. Shares ended the day up 7.2% to 134.3p. Its peer Prudential was higher after an analyst upgrade following its results on Tuesday, and Aviva also benefitted, the latter up 3.2% to 372.7p.

European markets began the day modestly higher, with the FTSE100 heading for the 6,000 mark before tailing off around mid-afternoon. It ended the day down 10.5 points, or 0.2%, at 5945.

This was posted in Bdaily's Members' News section by James .