New Star’s share price has plummeted from 244p to 7p over the last year (an all time low and a drop of 97%) and rumours that it could go under have prompted both clients to withdraw money from the beleaguered company’s funds and investors in the business to sell shares.
The company owes its lenders (which include the major high street banks like HBOS and Lloyds TSB) a massive £230m and is currently in talks about a possible takeover by the banks.
The firm asked for trading in its shares to be suspended on Monday but City authorities refused.
Investors with funds managed by New Star are no doubt concerned about the safety of their money but don't panic, says Kevin Mountford, head of banking and mortgages at moneysupermarket.com.
He says: “If you have an investment fund with the company, your money cannot be used to pay off the business’s debts. Investment funds are fully protected by the Financial Services Authority and are held in trust, so they sit separately to the company’s own finances meaning creditors cannot access them. If the company folds completely investors are still protected by the Financial Services Compensation Scheme up to £48,000.”
You may want to exit your fund because you are not happy with its performance, and that is still possible unless you are in New Star’s International Property Fund, in which trading has been temporarily suspended to stop large withdrawals.
If you own shares in New Star, there is more cause for concern. If the firm goes under you could lose everything. If it is taken over by its funders, shares values could be diluted. But selling now would see many investors realising a big loss with shares currently so low.