Legal & General says Government's cash injection is "not good for pensions" as it slashes dividends

26 March 2009 / by Rachel Mason
Legal & General has halved its final dividend following a £1.5billion annual loss.

The UK's fourth largest insurer slashed its payouts to 2.05p a share in order to save £120million and preserve its capital strength.

"In today’s current dislocated markets, the board feels it is prudent to prioritise capital strength; hence the dividend recommendation," said Legal & General Group chief executive, Tim Breedon yesterday.

The board said that the decision "reflects our realism about the current environment," but also "our confidence in the business model and underlying strength of the Company to trade through current economic uncertainty and emerge stronger after the recession."

"Balance sheet strength remains our priority in 2009 and will be underpinned by further improvement in the cash profile of our businesses and management of costs," continued Mr Breedon.

"We will be selective about sales growth and are reducing new business capital strain through product design and pricing action."

Mr Breedon said that despite the losses, which Legal & General says was caused primarily by turmoil in the stockmarkets and "insufficiently conservative" predictions about the affects of the credit crisis, the insurer's future strategy "remains sound."

"We believe we have a fundamentally sound strategy, a strong track record, and a good opportunity to generate additional value for shareholders by taking the right decisions around risk mitigation and business development during 2009," he said.

As well as using the company statement to explain why Legal & General had been forced to face reality and cut dividends to "promote balance sheet resilience", Mr Breedon also took the opportunity to criticise the Government's latest strategy to kick start the economy.

He said that the Treasury's plans to inject cash into the economy through "quantitative easing" - by buying gilts - was a mistake and will lead to pension deficits; the Bank should instead buy more corporate bonds, he said.

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