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The combined Lloyds TSB/HBOS bank is expected to become the largest single shareholder in troubled fund management group New Star under the terms of the debt-for-equity swap currently being negotiated.
While the talks between John Duffield, the founder and 4% shareholder in New Star are continuing, it is thought that most of the main points have been hammered out and a deal could be announced later today.
Duffield will have to cede control of the firm to the banks, led by HBOS, under the terms of the deal designed to relieve New Star of a £240m debt burden.
HBOS is the lead bank in a syndicate that includes Lloyds TSB, Royal Bank of Scotland, HSBC and National Australia Bank and granted New Star the loan last year. This indicates that the taxpayer, which owns 58% of RBS and an expected 45% of the combined Lloyds-HBOS, will own a greater share of New Star than Duffield.
New Star's shares, floated at 225p three years ago, had slipped slightly to 6.55p by 10am.
Stock brokers Altium yesterday put a "token 1p" valuation on the shares of New Star amid the ongoing uncertainty about its future that has led to concerns that investors are withdrawing savings from its funds.
The debt-for-equity talks were announced by New Star in a stock exchange announcement on Monday in which it said it had asked the UK Listing Authority to halt trading in its shares. However, the shares fell almost 70% after the UKLA, part of the Financial Services Authority, refused the request, which it argued had not been made formally before the announcement was made to the stock exchange.
The terms of the debt-for-equity swap are thought to include a new incentive package for the fund managers who have traditionally been paid low salaries but received large share payouts instead. Those payouts are virtually worthless given the fall in the value of the company which was worth £500m at its peak and now worth barely £20m.
- New Star Asset Management
- Investment funds
- Lloyds TSB
- Royal Bank of Scotland
- HBOS
- Banks and building societies
- UK banking sector
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