Market report: Monday close

By MICKEY CLARK FOR MAILONLINE
Updated:

 

ROYAL & SunAlliance touched 374p before reducing the deficit to 1 1/2p at 383 1/2p following weekend reports claiming the general insurer is about to hit shareholders with a £2bn fund-raising exercise.

Details of a possible one-for-three or one-for-four rights issue are expected to accompany the interim results on Thursday. But the company may pay a heavy price for the support of the institutions. There is mounting speculation that they will call for the head of chief executive Bob Mendelsohn who, they feel, has not extracted the most from the enlarged company following the merger a few years ago between Royal Insurance and Sun Alliance.

RSA wants the money to help expand its fastgrowing general insurance business. Insurance premiums have soared since 11 September, and the big players are expected to benefit from this long-term.

Only last week Prudential, down 11 1/2p at 770 1/2p, transferred its general insurance business to Winterthur of Switzerland in a deal worth more than £800m. Brokers say there will be further consolidation as cashstrapped insurers raise fresh funds to take advantage of the boom in premiums.

The rest of the market made a firm start to the week, cheered by the late rally on Friday in New York. But trading in London remained low key with the FTSE 100 index closing 79.60 points up at 5209.10 in thin conditions. This week the Bank of England, Federal Reserve and European Central Bank all meet to discuss whether to cut interest rates. A further cut of a quarter-point appears to be on the cards.

British Airways had a turbulent day, dropping 7 1/2p to 139 1/4p ahead of interim results tomorrow with the company's own joint broker, Merrill Lynch, forecasting huge losses in the full year for the world's favourite airline.

The shares did bounce back on the hint of slightly better traffic figures expected for December and finished 6% ahead - up 8 1/2p at 155 1/4p

Merrill had been looking for a loss of £65m but has now raised the deficit to £775m - and that is before exceptional items. Rival Goldman Sachs has downgraded the shares to underperform with a fair value price of 128p.

BA has seen a huge drop in passengers on its lucrative transatlantic routes following the terrorist attacks on the US. Last week chief executive Rod Eddington scrapped the staff's Christmas bonus and told senior executives to take a pay cut.

This latest fall in its share price could seal its fate as a Footsie constituent. The chances are it will now drop out of the index to make way for the soon-to-be demerged British Telecom subsidiary mm02. BT firmed 13p to 353p. Broker Credit Lyonnais has issued a cautious note on the property sector and downgraded the net asset value of some big players. It has told clients to top-slice their holdings. It rates Great Portland, 1p better at 248 1/2p, a hold, while Hammerson, 1/2p lower at 461 1/2p, remains a buy.

Marks & Spencer closed 3 1/4 p ahead at 301 1/4p ahead of interim results tomorrow. Broker ABN Amro has come out with a sell recommendation and says there is evidence of a slowdown in clothing sales. M&S is pinning its hopes on George Davis's new Per Una range of womenswear.

Securicor rose 6p to 118p after Goldman Sachs raised the shares from market perform to trading buy with a 141p target.

• Prices and indices in this section are supplied from various sources and calculated at different times and may not always match those listed in the tables. Ofex prices relate to the previous close.

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