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L&G doubles default reserves to £1.2bn

Legal & General has more than doubled its credit default reserves to £1.2bn but refuses to rule out a dividend cut in response to market concerns.

The move, revealed this week, comes in response to worries that L&G may struggle to meet capital requirements if it stress-tests assets against a further 20 per cent fall in equity and bond markets, something that the FSA is reported to have ordered.

L&G is to raise its default assumptions for corporate bonds for the next four years from 30bps a year to around 130bps a year. Its surplus capital stands at over £1.6bn.

Chief executive Tim Breedon quashed the possibility of an imminent cash call, saying during a conference call on Tuesday: “We have no plans whatsoever at this stage to raise capital.”

But a cut to dividends was not ruled out. Breedon said: “The board has not met to discuss the dividend. We are not making a dividend forecast in any way.”

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