Fai Blames Loss On Shaky Equity Market
The Age
Wednesday October 14, 1998
FAI Insurances yesterday revealed a pre-tax loss of $22.4million for the first quarter, compared with its latest full-year result of a $4.7million loss.
It blamed volatile equity markets for the massive slump in profitability.
FAI's chief executive, Mr Rodney Adler, said the loss in the first quarter was ``significantly below budget", and that FAI issued the ``preliminary" management accounts to keep shareholders fully informed during its takeover period.
However, Mr Adler described the general insurance result as ``in line with budget, but slightly below last year".
But some analysts were sceptical. ``Weak equity markets don't explain the entire loss; the insurance business must have had a very bad quarter as well," one analyst said, indicating that he thought the insurance book was still laboring.
While FAI has less than half its book exposed to the Australian equity market, the amount, according to Mr Adler, still adds up to ``several hundred million".
FAI shares fell two cents to close at 65cents - the price affected by the scrip nature of HIH's bid and the fact that many investors are buying FAI as a cheap entry into HIH.
Last night, Citibank emerged as a 10.2per cent stakeholder in FAI, following the merger of Travelers and the parent Citicorp in the United States.
A spokesman for Citibank said the Travelers' Australian stockbroking subsidiary, Salomon Smith Barney, had bought the stake ``some time ago". Salomon Smith Barney was active in the market yesterday, buying up to 1.9million FAI shares.
© 1998 The Age
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