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Swiss Re shares volatile on equity issue rumours

After a recent surge, shares in Swiss Re took a volatile path last week as reports that the reinsurance giant was looking to undertake an equity issue at SFr32 compounded a stockbroker downgrade.

Shares in the Zurich-based company dropped 9 percent on Wednesday, before recovering on Thursday and Friday to close the week at SFr36.

But the stock was trading down again in early trading today, falling 3.72 percent to SFr34.66 at the time of writing, along with many other financials.

Kepler Capital Markets downgraded the stock from "hold" to "reduce" - sending the reinsurer's shares down 4.5 percent to SFr36.90 - with its analyst Fabrizio Croce recommending investors switch to Swiss Re rival Munich Re.

In a note, Croce commented: "We include the stock as a preferred short candidate in Kepler's European Focus List, as we cannot exclude an overnight halving of the current share price."

The stock slid further as reports emerged from traders suggesting Swiss Re was looking at a share placement.

"We don't comment on market rumours," a Swiss Re spokesman said.

Speaking to The Insurance Insider, Execution Ltd analyst Joy Ferneyhough questioned the validity of the speculation over a potential share placement.

"I've probably been one of the most bearish analysts on Swiss Re, but I actually think they are further away from needing to do a rights issue today than they have been for the last 6-9 months," she said.

The analyst suggested that volatility in the stock last week - given the significant rise in the share price in recent weeks - was unsurprising, when with "any sniff of a rumour you're going to get people taking some profits".

Ferneyhough added that with Swiss Re currently trading at around 80 percent of tangible book value (factoring in the conversion of Berkshire Hathaway's preference shares): "For something that's not going to generate more than its cost of capital for at least 12-18 months, that's probably fair."

As reported in May's issue of The Insurance Insider, shares in Swiss Re rallied after it reported better than expected Q1 figures - despite profits plunging 75 percent to SFr150mn on further heavy investment losses.

The reinsurer's share price had dipped below SFr12 in March, but traded as high as SFr39.50 at the beginning of last week - although that is still less than half of their market worth at this time last year.

It also emerged late last week that Swiss Re is in the process of refinancing debt, with the issue under its European Medium Term Note programme of EUR1bn and EUR600mn senior notes by Swiss Re Treasury (US) Corporation assigned a+ ratings by AM Best.

Proceeds will be used for refinancing and general corporate purposes.

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