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New Star shares plunge amid talks

31 Dec 08

Shares in New Star Asset Management, one of the UK’s best-known fund managers, plunged nearly 43 per cent on Monday as analysts warned it had just days to negotiate a deal with its banks to avoid potentially devastating outflows of its funds

Shares in New Star Asset Management, one of the UK’s best-known fund managers, plunged nearly 43 per cent when analysts warned that it had only a matter of days to negotiate a deal with its banks to avoid potentially devastating outflows of its funds.

The FTSE-listed group announced that it was in talks with HBOS, Lloyds TSB, HSBC and Royal Bank of Scotland, about a debt-for-equity swap that would leave the banks owning a majority stake.

The company was left red-faced after it made public a request before the market opened for trading in its shares to be suspended – it was rejected by the Financial Services Authority and the shares plunged immediately.

It had argued that trading while talks with its lenders continued would create a false market as rumours circulated regarding the outcome of those talks.

A source close to the company did not believe the incident would have any serious effect on the outcome of the talks.

At one point, the shares plummeted 69 per cent, leaving John Duffield, the company’s founder, with losses of £900,000 on his stake in one day.

Mark Dampier, head of research at Hargreaves Lansdown, said: “People are clearly nervous and could start withdrawing money, which would be really serious. New Star has to come up with an announcement to stop the share price falls.”

All investments in New Star funds would be protected if the company failed.

There were fears that the group’s fund managers, whose bonuses are largely tied up in stock options, could leave if the share price continued to fall.

Martin Gilbert CA, a friend of John Duffield, quashed talk that his company, Aberdeen Asset Management, was looking at purchasing New Star, which last year took on £300m of debt. He said Aberdeen “would not be prepared to take on debt in this market”.

New Star has suffered a string of setbacks, culminating in the November decision to suspend trading in its flagship European Property fund. A few days earlier the company asked Stephen Whittaker to leave his job managing the popular UK Growth fund after “a long period of underperformance”.

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New Star | fund manager | Financial Services Authority | Martin Gilbert

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