New Star shares plunge amid bank talks
2 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
The Financial Times reports that the FTSE-listed group announced before the market opened 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 in the ailing group.
The company was left red-faced after it made public a request before the market opened on Monday for trading in its shares to be suspended that was rejected by the Financial Services Authority.
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. But the FSA refused the request and shares plunged as soon as the markets opened.
“It is embarrassing,” said a person close to the company. “But it shouldn’t have any serious affect on the outcome of the talks.” At one point, shares plummeted 69 per cent, leaving John Duffield, the company’s founder, looking at £900,000 in losses on his stake in a single day. Financial experts warned that if a deal was not wrapped up soon, investors could start withdrawing large amounts of money from the company’s funds.
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 investors in New Star funds would see their money protected if the company were to fail. There are fears, though, that the group’s fund managers, whose bonuses are largely tied up in stock options, could leave if the share price continued to fall.
A person close to the company said: “It is true that a deal needs to be done within days, but New Star is confident that will happen.” A company spokesperson said: “Our primary aim is that New Star reaches an agreement with its lenders.”
Martin Gilbert CA, a friend of John Duffield, moved to quash talk that his company, Aberdeen Asset Management, was looking at purchasing New Star, which last year took on £300m worth of debt. He said Aberdeen “would not be prepared to take on debt in this market”.
The announcement of New Star’s talks with its banks follows a string of setbacks for the company, culminating in last week’s decision to suspend trading in its flagship European Property fund.
Just days earlier the company asked Stephen Whittaker to leave his job managing the popular UK Growth fund after “a long period of underperformance”.