Capita falls on worries over hit from Arch funds

Capita stood out as the largest faller on the FTSE 100 index yesterday after the outsourcing company warned that it may end up bearing costs connected to two suspended Arch funds.

Shares in the company tumbled 5 per cent to 721p after it said its investment trust business Capita Financial Managers was in talks with the Financial Services Authority regarding the suspension of the funds it administers and would update the market again at the end of the year. The £350m range of Arch funds were suspended in the spring after they were hit by high redemptions in the aftermath of the Lehman Brothers bankruptcy.

Capita also warned that CFM, which administers nearly 600 funds and has annual revenues of about £50m, was still under pressure from increasing regulatory obligations and IT costs.

The wider group, however, has performed well in the second half, the company added, saying that "the market for outsourcing remains active". The group has secured work worth a total of £1bn in the 10 months to the end of October, compared with £1.2bn over the previous full year. Underlying profits for 2009 are set to grow in line with market expectations.

Analysts remained positive, with Credit Suisse highlighting "significant opportunities" in local and central government, as well as in the private sector. "Against the backdrop of the fiscal crisis, we expect the coming general election to crystallise some significant opportunities," the broker said. "Political parties making their cost plans known, putting projects out to tender and eventually awarding contracts should provide a series of positive catalysts."