Prudential was the worst-performing stock in the FTSE 100 after Merrill Lynch raised a question mark over the mounting costs of its new life insurance business.

The Pru’s Jackson Life business in the US was last year busy writing new policies, which meant a big build-up in “deferred acquisition costs” — upfront payments that the insurer makes to win new business and which it is allowed to write off profits bit by bit over the life of the policy.

Blair Stewart, of Merrill Lynch, warned that the Pru could be storing up trouble for the future. If markets worsen, he said, there could be a big writedown of profits. However, even if the value of its investments recovers, earnings for insurers such as Prudential will be held back by the need to write down the accumulated past costs.

Mr Stewart said that Old Mutual, off 0.15p at 76.05p, and Aviva, down 6¾p at 327¼p, had also seen big build-ups of deferred costs on their balance sheets.

Prudential fell 10½p to 406¼p even though Mr Stewart maintained “buy” advice, trimming his target price from 535p to 520p.

The FTSE 100 slipped 27.41 points to 4,252.57, depressed by falling miners and banks. A lacklustre trading statement from Standard Chartered, which said that credit quality for wholesale loans had deteriorated in the second quarter, sent it down 28p to £11.67. That put pressure on HSBC, down 12½p to 505½p, also affected by talk that it had exposure to some of the $6 billion lent to Saad, Maan al-Sanea’s Saudi firm, which is in default on some payments.

Lonmin fell 27p to £11.87 after Deutsche Bank cut its target price to £10.31, based on the costs of its furnace shutdown.

International Power, which has been hit by fears of a rights issue ahead of debt refinancing next year, rose 3¼p to 234¾p as it told Evolution analysts that even if banks refuse to roll over their loans at reasonable terms, it has the option of selling assets or issuing junk bonds or convertible shares. Evolution expects earnings to fall this year, rise modestly next year and jump in 2011.

Royal Bank of Scotland rose 1.19p to 36¾p as Cazenove double upgraded from “sell” to “buy”, saying that earnings would be bolstered by the company shrinking its vast merchant bank assets over the next three to five years.

Petrofac, the builder of oil and gas platforms and plant, jumped 27p to 626p ahead of a trading update next Tuesday on talk that it was close to starting oil production at its Don SouthWest field off the Shetland Isles. Sinopec’s takeover of Addax Petroleum is triggering further bid talk in the sector. Dana Petroleum rose 10p to £13.54 as RWE stirred talk that it might be eyeing a bid by issuing some £1.5 billion of sterling bonds. Tullow Oil continued Wednesday’s gains, up 19½p to 929½p, as a sale of the stake of its partner in the Jubilee oilfield off Ghana appeared imminent.

Morgan Crucible rose 8p to 144p helped by reiterated “buy” advice from Citigroup and talk of a renewed bid from Germany’s SGL Carbon — last attempted three years ago. Bid speculation lifted Evolution, the stockbroker, 11¼p to 146¼p in strong volume.

• New York: US shares leapt with investors optimistic that the economic deterioration is receding. The Dow Jones industrial average closed 172.54 points higher at 8,472.40.

Chorus of approval at EnCore

Smaller companies

EnCore Oil seems set to be the next explorer to benefit from the North Sea grab by utilities anxious to procure new gas supplies.

EnCore said that it and its partners in the Breagh gas discovery in the North Sea are close to selling 70 per cent of the field, including EnCore’s entire 15 per cent stake. A sale of the undeveloped field at about $7.50 a barrel would value the field at £400 million, said Richard Savage, of Mirabaud, making EnCore’s stake worth £60 million. “Not bad for a company with a £45 million market cap,” he added. EnCore rose 1¼p, or 9 per cent, to 15¼p.

Stratic Energy, flat at 17¼p, and Faroe Petroleum, down ¼p at 71¾p, both have 10 per cent of the field. The buyer is likely to be a utility which needs more gas such as Centrica, Scottish & Southern Energy or Nuon of the Netherlands.

Imagination Technologies lost 11p to 142¾p as Seymour Pierce said now was the time to take profits given that neither Apple nor Intel, which have been buying shares, were likely to bid.

Styles & Wood, the shopfitter, recovered 0.1p to 1.58p after its share issue to refinance the company, arranged by Shore Capital, was oversubscribed. The new shares will trade on Monday.

Clinton Cards rose 5½p to 27¼p after it bought back 196 of the 332 Birthdays stores that it put into administration a month ago.

Centamin Egypt, the gold explorer, seen as a potential bid target for the likes of Newmont Mining or Barrick Gold, rose 3½p to 90¼p after Merrill Lynch issued a “buy” note ahead of its planned move to the full list.

Northgate, the van hire business, gained 5½p to 110¼p after Goldman Sachs said that it was generating enough cash to avoid a rights issue.

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