L&G axes 10% of jobs after £1.5bn loss shocks the City

Published on Wednesday 25 March 2009 20:33

ABOUT one in ten of Legal & General's life and pensions workforce will go this year after the insurer plunged £1.5 billion into the red in 2008

Announcing its annual results yesterday, L& G also halved its final dividend, disappointing the City.

Group chief executive Tim Breedon said that, with the exception of technical adjustments following a 2002 rights issue, it was the first dividend cut by the 172-year-old company in living memory.

But Breedon said: "The market is obsessed with capital. Even though our cash flow is strong, in these extraordinary times capital becomes top priority and the dividend moves down a notch."

The final divi was cut from 4.1p to 2.05p.That resulted in a full-year dividend of 4.06p, down from 5.97p in 2007

L&G cut 10 per cent of its payroll – about 650 from 6,500 – last year. The group said there would be a similar percentage reduction in 2009, involving about another 600 job cuts, 450 of which had already been announced.

The company, whose business is overwhelmingly skewed to the UK, said staff cuts would largely be made across central functions, such as finance, human resources and risk compliance.

The loss at L&G, the last of the big insurers to report results, compared with a 883 million profit in 2007. The slide into the red came after the company increased provisions to cover possible defaults on the bonds it holds to pay annuities to policy holders by 650m to 1.2bn.

Breedon said: "This represents a historically high rate of provisioning, above levels needed to cover the worst default levels since the Great Depression."

Underlying operating profits at L&G on a European embedded value (EEB) basis rose to 870m from 848m in 2007, but well short of the 989m City consensus forecast. L&G's shares closed down 7.2 per cent, or 3.1p, at 39.7p.

Breedon is shifting L&G away from writing costly insurance business, which ties up capital, towards simpler and cheaper asset management products.

Analysts at Panmure Gordon said the divi cut was disappointing given the company spent 523m buying back 7 per cent of its shares last year, but said it probably made sense, adding: "The cut in 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."

Aviva recently saw its shares hit by a 30 per cent one-day loss after it maintained the dividend despite falling into the red.

Talking of his general strategy in the recession, Breedon said: "Capital is going to be scarcer and more expensive for some time. That will be the biggest impact of the banking crisis."

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