Shares in life insurance and asset management giant Legal & General (LGEN) slid to the bottom of the pile in the FTSE 100, losing 3.8% to 224p after the group posted a sharp fall in first-half earnings due to investment losses.

Net outflows in the first half compared with net inflows last year, on top of ‘the impact of market conditions’, meant total AuM (assets under management) shrank by 10% or £132 billion.

EARNINGS AND ASSETS FALL

For the first six months the group reported operating profit of £1.14 billion, virtually flat on last year and ahead of forecasts thanks to higher sales of retirement products and a strong performance at L&G Capital driven by the ‘alternative asset portfolio’ which offset lower earnings at the insurance arm and at the asset management business.

However, investment losses of £617 million – which the firm put down to higher interest rates – caused pre-tax profits to tumble 53% to £324 million against £697 million last year.

In addition, assets under management decreased by 10% due to negative flows of £19.3 billion compared with positive flows of £64.7 billion in the first half of 2022, reducing management fee income by 11% during the period.

Outgoing chief executive Sir Nigel Wilson – who hands over to ex-Banco Santander head of UK and Europe Antonio Simoes next January – said he was ‘confident we can continue to deliver profitable growth as we execute on our strategy’ for earnings and net capital generation to grow faster than dividends.

EXPERT VIEWS

Most analysts seemed to focus on the firm’s profitability and its Solvency II ratio, which measures how much capital it has built up to cover mark-to-market losses and like earnings was ahead of estimates.

However, ‘Legal & General may be on track from its own perspective as it beat expectations, but the reaction of the market suggests investors aren’t fully on board,’ commented AJ Bell investment Director Russ Mould.

‘What may be creating disquiet is the material drop in assets under management. This is a result of both market conditions but also net outflows.

‘As a domestic-facing stock Legal & General could also be vulnerable thanks to the latest wage growth data suggesting inflation is becoming more entrenched.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Ian Conway) and the editor of the article (Tom Sieber) own shares in AJ Bell.

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