Prudential bid for AIG's Asian arm sends shares tumbling

Prudential’s £23.5bn (€26bn) swoop for the Asian arm of stricken US insurer AIG sent shares in the firm slumping 12% today.

Commentators called the deal “audacious”, but worries over the risks of the mega-deal and the dilutive impact on shareholders of the UK’s biggest ever rights issue sent shares down 68.5p to 534p.

The wider FTSE 100 Index was 41.7 points up at 5396.3 however as firmer commodity prices bolstered mining firms and Wall Street made early gains. Traders said the weekend’s earthquake in Chile was likely to support copper prices on supply concerns.

The pound endured a torrid session however as polls showed a narrowing Conservative lead and heightened fears of a hung parliament.

Sterling plunged to its biggest one-day fall against the dollar for more than a year, trading below $1.48 at one point, and dropping below $1.10 against the euro.

Prudential shares were initially suspended pending confirmation from the company of the deal. The deal worth $35.5bn (€26.3bn) was confirmed mid-morning and caused stock to fall across the sector as investors reduced their exposure in the wake of the Pru announcement.

Aviva was down 15.8p to 374.5p and Legal & General slid 4p to 73.2p.

HSBC was the other big faller of the session after lukewarm reaction to annual results from the global banking giant.

The Hong Kong-based firm reported a 56% rise in underlying profits to £8.8bn (€9.7bn), but the figures were below analysts’ expectations and included a further rise in bad debt charges. Shares fell 5% or 36.7p to 682.9p.

Elsewhere in the sector, Lloyds Banking Group declined 2.1p to 50.4p and Royal Bank of Scotland eased 1.4p to 36.3p after making gains last week in the wake of full-year results.

Firmer commodity prices and the return of deal activity boosted mining stocks as Kazakhmys lifted 56p to 1397p and Eurasian Natural Resources cheered 33p to 1060p.

They were joined on the way up by Financial Times and Penguin books publisher Pearson, which posted a 13% rise in full-year profits and said it expected another profitable year in 2010.

While the company warned that some of its markets were likely to see continued tough trading conditions, shares rallied almost 4% or 35.5p to 947.5p.

The other big rise in the top flight came from temporary power supplier Aggreko, up 39p to 1014p after it signed a contract to provided broadcast and technical services at the FIFA World Cup in South Africa.

The deal, which follows a similar arrangement at the Vancouver Winter Olympics, is another notch in the recent rapid growth that has transformed the Glasgow-based firm into a FTSE 100 listed company.