L and G in FSA Talks As Shares Fall 10%

L&G in FSA Talks As Shares Fall 10%

Legal and General (L&G) has denied that is has been in discussion with the financial industry regulator, the Financial Services Authority (FSA), in connection with expected defaults on corporate bond holdings.

In short, corporate bond funds or fixed interest funds lend money to companies for a given fixed rate of return.  This is good for investors when company pay their debts but is it not always good if some companies go into liquidation or miss their loan repayments.

For example, what if you had lent money to MFI? This company is now in receivership.  Whilst, your corporate bind debt takes priority over shareholder investments, it is third in line to HMRC and pension fund debts.  There may therefore be no money left to cover the debt owed to you or your investment fund.

This is why there has been speculation that L&G is upping its reserves to cover any bad debt for investors.  

This does not mean that L&G are going out of business, far from it.  It means that L&G will not make as much profit for shareholders this year as profits are being used to make up any bad debt, hence the fall in share price.

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