Hard-up Royal seeks funds

IS Royal & SunAlliance heading for a total eclipse? The situation at the battered insurer is going from bad to worse. Profits for the first half of this year fell sharply because of a surprise £66m extra write-off for 11 September. It announced the closure to new business of its unit-linked life assurance funds, resulting in 1,200 job losses, and rating agency Standard & Poors is making dark threats to downgrade its credit worthiness if it does not build up its capital strength pronto.

Operating profits fell 18% to £301m, and the dividend was lopped 52% to 4p. The shares, which fetched more than £8 at their peak in 1998, slumped 30 3/4p to 112p.

As if all that were not enough, Bob Mendelsohn, RSA's £1m a year American boss, refused to rule out a rights issue - a move that would be deeply unpopular with the market. Mendelsohn's controversial master plan is to extricate RSA from life assurance and turn it into a general insurance specialist. He needs to raise another chunk of capital to be able to take advantage of what he sees as the growth opportunities.

The group has raised £375m by selling off peripheral businesses. Another £350m will be squeezed out of the life assurance side as a result of Mendelsohn's overhaul.

Pension and endowment holders are in for a rocky ride. The two major with-profits funds, the £9bn SunAlliance & London fund and the £11bn RSA Life & Pensions fund, were already closed and have wafer-thin cushions of free capital, even after using financial engineering to plump up their solvency.

They also face combined Guaranteed Annuity Rate liabilities of £1.2bn, though unlike Equitable Life, shareholders can be asked to pay the tab. RSA will only get a rights issue away at a very deep discount. Its best hope is to find a bidder for the group, but with the big European players in the wars themselves, there is unlikely to be a long queue forming at its grand Berkeley Square headquarters. As for Mendelsohn, his job would be under threat if anyone were crazy enough to want it.

ECB softens

THE European Central Bank has followed the lead of the Bank of England and softened its stance on interest rates. Like the Old Lady, the ECB's gearshift was prompted by fears that falling stock markets are heightening the risks to economic growth. In its August bulletin, the ECB says it is now more pessimistic about growth and less worried about inflation, prompting economists to predict that it will keep rates, unchanged at 3.25% for nine months, on hold for a while longer.

The ECB's newly dovish tone comes amid mounting concerns about the health of euroland, where growth is now forecast to slow to between 0.6% and 0.9% in the quarter to September.

In Germany, the biggest economy, unemployment in July rose to a three-year high of 4.1m, as giants including Commerzbank and Siemens shed staff.

There is more jobs pain to come from the country's struggling financial sector, with banking behemoth Deutsche and insurer Allianz both ready to wield the axe. German manufacturing, like ours, is suffering a slowdown, with orders falling 3.2% in June.

The woes of the US and the consequent strengthening of the euro against the dollar have raised fears that European exports will be hurt.

Wall Street calmed down last night after Brazil reached a deal with the International Monetary Fund for a $30bn loan to rebuild fragile confidence in the run-up to its presidential elections.

But with Latin America still on a knife edge and Iraqi dictator Saddam Hussein beating his chest in defiance of US threats to topple him, world markets are likely to remain wobbly. The ECB is wise to sit on its hands.

It's a scream

FLEDGLING investment house Bedlam Asset Management, whose founder will pay himself only the minimum wage unless the company performs, has a nice line in black humour.

The cover of its share prospectus sports a reproduction of Edvard Munch's The Scream and, thanks to a tiny noisebox, actually does scream alarmingly when opened. It is certainly much more entertaining than the average dry as dust listing document.

But the folks at Bedlam might wonder whether investors are in the mood for laughs at the moment.

They should also reflect on the fate of other novelty-named funds: Merrill Lynch Global Titans, for instance, which shrank the punters' investments to dwarf-size, or Gartmore Tech Tornado, which did indeed destroy everything of value that lay in its path.