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City View: L&G goes for the money and the City doesn't blink.

Byline: Nevill Boyd Maunsell

If you are an insurance company in trouble, like Zurich last week, you need a rights issue to patch up your balance sheet. If you are an insurance company on the make, like Legal & General yesterday, you need a rights issue to give you the financial muscle to muscle in on your rivals' misfortunes.

Well, that is how L&G presented it yesterday. True, it would never have needed to ask it shareholders for the best part of pounds 800 million if the stock market had stopped falling last Christmas. It has got along without onefor the last fifty years. It would have had all the 'free' assets that it needs to back the sales cascading in from its link-ups with Barclays, Alliance & Leicester. Northern Rock and heaven knows how many independent advisers and partnership deals. The choice was to cool off the sales or to go for the money. They went for the money - and lo and behold the City didn't mind.

Nor should it, you may say. Providing capital is what the City is for.

Note, though, L&G is taking care to wear both belt and braces. The belt is a price for the rights 47 per cent below Monday's share price, enough to keep the issue out of range even if ill-intentioned bear raiders try to de-stabilise the shares, as they did with Cookson. With any ordinary luck, the discount also gives those shareholders who feel disinclined to sign a cheque, the chance to pick up a little cash by selling their rights nil-paid.

For braces, L&G is spending pounds 2 million to get the entire issue underwritten, so it gets the money whatever the stock market does. Odd that. Insurance people know about measuring risk. They don't re-insure every last penny - except that this time that is what L&G has done. You can see why Royal & Sun Alliance is taking so long to tee up its rights, which has been the talk of the City for weeks. The underwriters preferred to take L&G's money first. Meantime R&SA's shares have richly rewarded their brave backers - seemingly buoyed up by the thought that there may not be an issue after all.


As the new generation of trade union hard men flex their distinctly old-style biceps by the seaside, Halifax come up with a credit card reserved for folk earning pounds 75,000 or more. This 'Carbon Card' - the stuff diamonds are made ofcomes with assorted bells and whistles, like a call centre that gives tips about golf courses and yacht charters when you are travelling. It is the old idea that if you pamper rich people you can charge them richly.

Announcing the project yesterday Halifax stated that according to the Inland Revenue there are now 1.2 million people in the UK earning pounds 50,000 or more and 300,000 over pounds 1000,000. Because they are based on last year's tax returns Inland Revenue numbers are always out of date. This is an understatement.

It is why ordinary trade unionists have elected the hard men on view in Blackpool. They feel it is their turn now. And, since most trades unionists work in the public sector, they like the smell of Chancellor Brown's money.
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Sep 11, 2002
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