Natwest Bank indicated yesterday that insider dealings took place in Legal & General shares before the bank's recommended £10.7 billion sterling (€16.24 billion) bid for the life assurer.
Activity in Legal & General shares surged on Thursday afternoon, driving the price up 10 per cent to 192 1/4p. By the end of the day, 42 million shares had changed hands compared with a more normal daily volume of eight to 12 million. The unusual movement forced both NatWest and its target to confirm on Friday that they were in advanced talks.
Sir David Rowland, chairman of NatWest, told the Financial Times: "There was a multiplicity of small transactions coming through Swiss bank sources, so it does look as though people were trying to conceal their activities."
NatWest also confirmed that a stock exchange investigation was being held into the insider dealing. Both companies, along with their advisers - JP Morgan for NatWest, and Schroders for Legal & General - will be questioned. Sir David said: "We are concerned with the way the world goes. What used to be possible - to maintain confidentiality until the specific presentation of a deal had been worked out - is now very difficult."
Analysts pointed out that trading based on insider knowledge may have been relatively limited, but widespread enough to create a bandwagon effect amongst traders who noticed something unusual happening.
Although NatWest's share price slipped further yesterday, both parties to the bid said they did not expect any other party to try to intervene. Legal & General's shares closed 3 1/4p lower at 202p.
Mr David Prosser, chief executive of Legal & General, said: "Where else is there a stronger business fit? If there isn't a stronger business fit, how on earth can they pay more?"
Mr Prosser conceded that Aegon, the Netherlands-based pensions group, and Allianz, the Munich-based insurer, might fall into that category, but he doubted they would be interested in bidding without the support of Legal & General's management.
Mr Derek Wanless, NatWest chief executive, will be chairman and group chief executive of the enlarged group, with Mr Prosser as deputy chairman.
