L&G chief attacks Treasury scheme

By RUPERT STEINER FOR THE DAILY MAIL
Updated:

 

The boss of Legal & General has launched a scathing attack on the Government for its ' misguided approach' to quantitative easing - the tool being used to boost the nation's money supply.

Tim Breedon, Chief Executive Officer of Legal & General.

Scathing: Tim Breedon says pumping money into the system is 'not good for pension funds'

Tim Breedon, chief executive of Britain's third-largest insurer, said pumping new funds into the system to kick-start the economy 'doesn't address the problems directly' and is 'not good for pension funds'.

Breedon went on the warpath as he said the programme focused far too heavily on government debt, known as gilts.

'I am not a big fan,' he said of the scheme. 'The Government's objectives would be better served by extending QE purchases to corporate debt, which would help restore confidence to another asset class.'

He made his comments after cutting L&G's dividend for the first time in the firm's 173-year history to shore up the battered balance sheet.

The business slumped to a full year loss after being hammered by the plunging value of shares and bonds. But Breedon reckons L&G can still withstand a further severe downturn in world stock markets.

The insurer is putting aside a hefty £1.2bn to provide a safety net in case firms start to welch on their debts, known as corporate bonds. Breedon said: 'This represents a historically high rate of provisioning above levels needed to cover the worst default levels since the Great Depression'.

However, its cash surplus, the buffer used to protect L&G against a sharp fall in the value of its investments, has plummeted from £4.1bn to £1.8bn.

Much of this is due to the equity markets tanking, the heavy costs of an aborted share buyback programme and the default provision.

Analysts are also concerned about its £2.6bn exposure to sliced and diced debt known as asset-backed securities. But Breedon and his team say they are good quality investments.

L&G posted a £1.1bn loss in 2008 compared with £718m profit for the previous year. The final payout drops to 2.05p a share from 4.1p - the dividend cut is expected to save £110m annually. The group plans to axe around 650 jobs, similar to last year.

L&G's full-year figures were aimed at restoring confidence in the business after fears swept the market about its solvency.

However, the shares fell 3.1p or 7pc to 39.7p, dragging the rest of the sector with it.

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