Stay up to date with notifications from The Independent

Notifications can be managed in browser preferences.

Traders lose millions as L&G is jilted

Francesco Guerrera Stock Market Reporter
Friday 24 September 1999 23:02 BST
Comments

Your support helps us to tell the story

From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.

At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.

The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.

Your support makes all the difference.

A LEADING City investment bank was rumoured to have lost up to pounds 100m yesterday following Bank of Scotland's bid for NatWest.

Market sources said the bank was one of a large number of arbitrageurs and hedge funds that lost millions of pounds following yesterday's jump in the NatWest share price.

The investors had gambled on a sharp fall in the NatWest share price following its offer for Legal & General and were caught off-guard by the surprise bid from Bank of Scotland.

The bid arbitrageurs, known as "arbs", make money by exploiting the difference in the share prices of the two companies involved in a takeover.

In the case of NatWest's offer for L&G, the arbs were "shorting" the bank's shares - borrowing shares they did not own and selling them on in the hope of buying them back at a later date - and bought shares in the insurer as a cheap way into NatWest.

However, yesterday's sharp rise in NatWest shares forced many arbs to buy the bank's shares at a much higher price in order to cover their borrowing costs.

Sources said that arbs rushed to sell L&G and buy NatWest straight after the opening. The arbs' scramble to unwind their positions caused a selling frenzy in L&G shares, which left the stock nearly 6 per cent lower at 180.5p in huge volume of more than 170 million shares.

BoS has made it a condition of its bid that NatWest abandons its merger with L&G and few believe that a deal that was already under pressure can go ahead, particularly now that NatWest has adjourned its extraordinary meeting to approve the offer.

There is speculation that foreign insurers, encouraged by the fall in L&G's share price to well below the 210p NatWest had offered, could launch a rival offer. Both Aegon of Holland and Allianz of Germany are thought to have run their slide rule over L&G.

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in