By Adam Haigh
Feb. 16 (Bloomberg) -- U.K. stocks fell for a third day as concern deepened Lloyds Banking Group Plc may need further capital and a leading industry body forecast the economy will shrink twice as fast as previously thought.
Lloyds dropped 4.1 percent after analysts speculated the lender may require more capital to shore up its balance sheet. Legal & General Group Plc slumped 9.5 percent as the Financial Times reported the insurer is in talks with the Financial Services Authority about the amount it should set aside for defaults in its bond portfolio.
“Lloyds is absolutely at the head of affairs,” said David Buik, a London-based markets analyst at inter-dealer broker BGC Investors. “Investors are incandescent with rage at the lack of transparency,” he said in a Bloomberg Television.
The benchmark FTSE 100 Index fell 11.47 points, or 0.3 percent, to 4,178.127 at 9:29 a.m. in London as two stocks retreated for every one that advanced. The FTSE All-Share Index dropped 0.3 percent and Ireland’s ISEQ Index lost 1.5 percent.
The Confederation of British Industry today said the economy in the U.K. will shrink at almost twice the pace previously forecast this year as the region heads into the worst recession in 30 years.
Gross domestic product will contract 3.3 percent, instead of the 1.7 percent predicted in November, the biggest U.K. business lobby said today. By the end of 2009, the economy will have contracted for six consecutive quarters, it said.
Lloyds slumped 4.1 percent to 58.9 pence. The shares fell 33 percent on Feb. 13 after the lender said it expected HBOS Plc to report a 10 billion-pound ($14.5 billion) pretax loss.
‘Further Capital’
“We cannot discount the prospect of Lloyds requiring further capital if HBOS turns even worse,” Collins Stewart analyst Alex Potter wrote in a report to clients today.
Lloyds agreed to buy HBOS, formerly the U.K.’s biggest mortgage lender, in a government-brokered takeover in September when it came close to collapse as credit markets froze.
Legal & General declined 9.5 percent to 44.8 pence. L&G may increase the reserve funds when it reports preliminary results next month, the FT said. A report by Cazalet Consulting for one of its clients raised questions about L&G’s “level of reserving,” the newspaper said.
“We’ve had no more conversations with the FSA than we usually have before the end of year results,” said spokesman Richard King.
Mondi Group slid 7.5 percent to 150.75 pence as it reported a slump in profits for 2008. Africa’s biggest papermaker said it’s full-year “underlying” profit fell about 12.5 percent in the year ended Dec. 31.
Clinton Cards Plc, the U.K.’s biggest greeting-cards retailers, lost 9.5 percent to 9.5 pence. Chief Financial Officer Barry Hartog said it is in talks with lenders about replacing a 60 million-pound ($86 million) bank facility with a new three year arrangement.
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
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