Banks rescued by the taxpayer have seized New Star, the troubled fund management group which is to delist from the stock exchange after a radical restructuring.John Duffield, the founder of New Star, is ceding control of up to 95% of the operation to a consortium of banks led by HBOS to relieve its £240m debt. Duffield is thought to have been reluctant to agree to the terms of the debt for equity swap which was finally ratified by the New Star board late yesterday afternoon. The fund manager, which took out high profile billboard adverts to attract savers, had been forced to find a way to eradicate the debt to address the concerns of major clients who were reluctant to place their money with the firm.Duffield is not expected to remain with the group he founded for much longer after a long City career during which he has developed a reputation as a maverick - albeit a successful one.The complex restructuring is expected to leave banks rescued by the government with control over New Star, which Duffield launched after a high-profile row with the owners of his previous venture, Jupiter. The combined Lloyds-HBOS bank in which the taxpayer is likely to own about 40%, will have an estimated 45% stake in New Star and RBS - now 58% owned by the taxpayer - with about 15% in the fund management group. HSBC and National Australia Bank will also have stakes.Yesterday Duffield, 69, was unrepentant about the restructuring which will also hurt his own pocket as he owns around 5% of the company."The cost of this restructuring is regrettably a substantial dilution for ordinary shareholders, including me. However, in current market conditions we have to recognise that there is no option to ensure the stability of the business," Duffield said."We are now free to focus all our attention on improving our investment performance. Our existing share-based bonus scheme will be replaced by a new scheme to ensure that our key people are locked in." Two new share-based incentive schemes are being put in place for New Star staff, many of whom had been lured to work at the group by the promise of lucrative incentive schemes. Until the credit crunch began to bite, the schemes had proved attractive to employees after its flotation at 225p three years ago. The shares reached 450p before collapsing to just 4p which values the company at barely £20m.Staff own about 25% of the company and the debt for equity swap will wipe out all existing shareholders who will have to approve the de-listing of the shares. The company took on the debt to return £363m to shareholders last year before the credit crunch began.Duffield has taken out a total of £150m from the company which had been forced to renegotiate the terms of the loan last month amid client withdrawals. Funds under management are now £13.9bn from a peak of £20bn.New Star had already embarked upon a cost cutting exercise and is losing 60 jobs from its workforce of 380. More posts may now be shed as the banks exert their influence. Directors such as the chief executive Howard Covington may also decide to step aside. The anxiety about the company's debt was heightened after the market mayhem caused by the collapse of Lehman Brothers. Its customers' nerves were further frayed by the suspension of dealing in its high-profile international property fund. The board also blamed its stock market listing for its plight."The board believes that the reporting requirements and public scrutiny that are part of being a listed company have served to magnify these concerns," New Star said.The restructuring involves the banks converting £240m of the £260m they are owed into £94m of preference shares and enough ordinary shares to allow them to own 75% of New Star. The preference shares pay an annual interest and convert into ordinary shares that could ultimately allow the banks to own 95% of the company. While returns for investors in its funds will be affected by the financial turmoil, all investors' money is held in separate trusts and therefore ring-fenced from the fund manager's operations.New Star Asset ManagementUK banking sectorMergers and acquisitionsCredit crunchguardian.co.uk © Guardian News & Media Limited 2008 | Use of this content is subject to our Terms & Conditions | More Feeds
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A sign that the current crisis is fanning a desire for protectionism emerged yesterday when members of Congress warned George Bush against trying to fast-track a trade deal for the end of the year.Pascal Lamy, director general of the World Trade Organisation, is considering calling trade ministers to Geneva to conclude the Doha liberalisation talks. "Unfortunately, the negotiating texts currently on the table would provide little if any new market access for US goods, and important advanced developing countries are demanding even further concessions from the US," said a bipartisan letter from Charles Rangel, Max Baucus, Jim McCrery and Charles Grassley. Democrats Rangel and Baucus chair the Ways and Means and the Finance committees respectively, while McCrery and Grassley are the ranking Republican members."We see no tangible progress, and in fact believe that some of our trading partners have become even further entrenched in their unacceptable positions."Lamy wants to bring more than seven years of acrimonious talks to an end with a meeting next weekend, after last month's summit of G20 leaders in Washington instructed trade ministers to settle differences over agriculture and manufactured goods. Some officials believe it would become more difficult to conclude any deal once Barack Obama is sworn in next month.WTO sources last night talked of a meeting on December 13, although Lamy was more cautious. In a fax to the WTO's 153 members, he said he had yet to decide whether there had been enough progress since talks broke down in July: "As we all know, we still have a number of outstanding issues. But the reality is the relevance of what we are doing to the financial crisis," he said. "If we fail we have a problem; but although there remains the risk of failure, the risks involved in not trying are higher."He is concerned that economic distress in the US, Europe and Asia is already prompting countries to use protectionist weapons yet to be outlawed by the WTO - raising tariffs to the maximum permitted, and introducing anti-dumping regulations.US agriculture secretary Ed Schafer said he was confident a deal could be done, and confirmed that Washington was ready to make a big cut in its agreed ceiling for agriculture subsidies if other countries opened their markets further to US farm produce. "We in the US remain confident we can see a successful completion to the Doha round this year," he told reporters in Beijing.However, the Congressmen warned Bush against being rushed into a deal that would be rejected on Capitol Hill. "We strongly urge you not to allow the calendar to drive the negotiations through efforts to hastily schedule a ministerial meeting, without adequate groundwork having been laid. "Developed and advanced developing countries must commit to provide meaningful new market access opportunities if Congress is to support a deal.'"Achieving the necessary flexibility from our trading partners could require new thinking ... and our negotiators should be given time to explore such options. Otherwise, the likely result will be a deal that Congress cannot support - an outcome that would be detrimental to US farmers, workers and firms, the global economy, and the WTO itself."Amy Barry, trade spokeswoman for Oxfam, said: "This round of talks was meant to be primarily about development, not about market access for US farmers and companies. Yet Oxfam is hearing that the US, with tacit support from the European Union, Australia and others, has now put extra demands on the table, mostly about further prising open the markets of major emerging economies. "These come as China has seen a major fall in its exports, leading to many enterprises closing and huge numbers laid off to go back onto the land ... India has lost 20% of its exports in a year, with 1.2m job losses in textiles and clothing alone ... It is difficult to understand why anyone would seriously expect China and India to agree to yet more trade concessions."Doha trade talksWTOGeorge BushUS CongressGlobal economyUnited Statesguardian.co.uk © Guardian News & Media Limited 2008 | Use of this content is subject to our Terms & Conditions | More Feeds
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One of Royal Bank of Scotland's mortgage divisions has come under fire after refusing to pass on last month's interest rate cut in full, despite having "promised" to follow Bank of England base rate moves.The decision has prompted an outcry among customers.Holders of mortgages in the One account, formerly a joint venture with Sir Richard Branson's Virgin empire but now 100% owned by RBS, are worried they will also not see the full benefit of today's likely rate cut. Dozens of people have joined a Facebook protest group including Rowan Gormley, the former boss of Virgin Direct who developed the One account concept.RBS and NatWest last month said standard variable rate (SVR) mortgages would be cut by the "full 1.5%" after the Bank of England base rate was cut from 4.5% to 3% on November 6. But One account customers have been told they are only getting a one percentage point cut.Angry customers point out the gap between the base rate and One account rate has increased by a percentage point in the past year. Against a backdrop of falling interest rates, they were hit with a quarter-point rise in July. The Guardian has obtained a copy of a letter sent out by the division in May 2001, which states: "Our promise is that we'll follow the base rate and pass the benefits of interest rate cuts on to our customers straightaway."Tony Wood, the former marketing director of Virgin Direct who is a One account customer, said RBS's behaviour was "a betrayal of all the principles we built the One account on in the first place". He added: "It's interesting to see how, as a majority taxpayer-owned business, they can even contemplate going back on such clear-cut promises, which was one of the main reasons for customers signing up in the first place. It makes particularly interesting reading in the context of the Financial Services Authority's 'treating customers fairly' rules."Dozens of disgruntled mortgage holders have joined the Facebook group, said Wood, who now works as a brand and communications consultant.RBS's decision to treat One account customers differently is potentially embarrassing because, when the division was half-owned by Virgin it made great play of how it passed on every rate cut to customers in full within 24 hours of each Bank of England announcement. In 1999, the then managing director of Virgin One, as it was called, said: "We have passed on every rate cut in full on the same day because that is how our customers expect to be treated - fairly and honestly."RBS, which bought out Branson's stake in 2001, said: "The One account mortgage is a variable rate product and not linked to base rate or the RBS and NatWest SVR. The decision to cut flexible rates by one percentage point follows consideration of a range of factors such as the wider market environment, including the sustained increase in the cost of funding variable rate mortgages."A spokeswoman said One account holders had benefited from a half-point cut effective last month. "The cumulative effect means this mortgage remains competitive. This movement is in line with the product terms and conditions," she said.Royal Bank of ScotlandMortgagesBorrowing & debtUK banking sectorConsumer affairsFirst-time buyersCredit crunchguardian.co.uk © Guardian News & Media Limited 2008 | Use of this content is subject to our Terms & Conditions | More Feeds
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The supermarket chain Morrisons is expected to unveil plans today to buy some 35 shops from the Co-op. The stores were put on the market as a result of the Co-op's planned takeover of the Somerfield chain.The Co-op announced a £1.6bn deal to buy Somerfield's 800 shops in July, but the bid was conditional on OFT approval. Some analysts suggested that up to 200 shops would have to be sold off to alleviate the OFT's competition concerns. However, it is understood that the OFT has now ruled that some 120 stores must be sold, and that the Co-op must find buyers for about 20% of those outlets before the deal can be completed. The others can be sold off after the Co-op takes control. It is understood that the discount outlet Lidl and Tesco are also acquiring some of the stores that have to be pre-sold.When the deal was announced Peter Marks, Co-op's boss, described it as "a great opportunity to make a step-change". The Manchester-based mutual will cement its position as the UK's fifth-biggest supermarket business. It will have more than 3,000 shops, sales of £8bn and its market share will almost double to 8%. The shops being acquired by Morrisons, some of which are on the list of outlets that have to be pre-sold, will increase the size of the Morrisons' estate by about 10%, but some analysts will see the acquisition as a risk. They are smaller than the "big box" outlets on which Morrisons' business model is based and the grocer will have to absorb them into the business in a recession.Details of the acquisition, which were still being thrashed out last night, will be announced along with a trading update from Morrisons, which is expected to show that it is outperforming all other super- markets. Analysts expect the Bradford-based chain to reveal like-for-like sales growth of about 7.5%, compared with the 2% unveiled by Tesco earlier this week - the latter's lowest rate of growth since 1994.Separately, the administrators of the Woolworths chain had a full list of bids for its 800 shops last night. Deloitte, which is handling the administration of the failed retailer, set a 4pm deadline yesterday for those making an offer for the outlets. A Deloitte spokesman refused to comment on the bidding, but said the shops had attracted "very strong interest". However, the accountants had received some 335 expressions of interest in the stores by the end of last week. They varied from big-name retailers interested in tranches of stores to individual approaches for single shops. All of the big four supermarket chains are believed to have put in bids for some outlets.The administrators have not yet ruled out selling the entire business as a going concern. They are said to be considering three such offers, including one from Dragon's Den entrepreneur and stationery retailer Theo Paphitis.MorrisonsMergers and acquisitionsSupermarketsRetail industryguardian.co.uk © Guardian News & Media Limited 2008 | Use of this content is subject to our Terms & Conditions | More Feeds
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The case against the government's plan for two-year mortgage holidays is easy to make. Doesn't the idea fail the "moral hazard" test? It could be interpreted as invitation to splurge your savings on a new car, safe in the knowledge that you won't lose your home if you lose your job. That's not a way to encourage prudent behaviour. And what are government estimates of the scheme's cost based on? The theoretical liability for the taxpayer is put at £1bn but the likely cost is estimated at £100m. That seems to assume that the overwhelming majority of people who lose their jobs will find new ones quickly. That hope could soon look heroic.From the point of view of the banks (half of which are owned in whole or part by us, the taxpayers, don't forget), the scheme could simply exaggerate losses. A homeowner may not be in negative equity at the moment he or she starts a mortgage holiday but, after two years, the arithmetic could be different if house prices continue to decline. If repossession happens anyway after two years, the bank will suffer a loss, increasing the chances that the taxpayer will be sucked into another round of recapitalisation.The instinct to ease the human pain of repossession is honourable. But the devil is in the detail of this scheme. There was little detail yesterday, which is not encouraging.Tied to the railsIt is only two months since Brian Souter said shares in Stagecoach were as close to gilts as one can get in the current economic environment.He's still right in a sense. Running buses and trains remains a cash-generative business - all those cash fares and season tickets mean that Stagecoach still feels confident in talking about 10% annual dividend increases. But a collapse in the share price from 236p in October to 143p is probably not what Souter imagined.The fears revealed yesterday are concentrated in the rail business, about 40% of Stagecoach's revenues, and specifically in the South West Trains franchise based in Waterloo. The equation is simple: fewer City workers means slower revenue growth.Next year's slowdown will also arrive at the worst possible moment for Stagecoach. Instead of this year's £21m subsidy, the firm will pay £42m for the privilege of running the franchise. Worse, an insurance arrangement - whereby the Department for Transport covers 80% of losses if passenger numbers fall off a cliff - doesn't kick in until 2010. Nor will fare increases save the day: most fares are regulated by a retail prices index plus 1% formula, meaning deflation in the economy is a rail operator's worst nightmare.The correlation between gross domestic product and rail travel has been close for decades, so perhaps the City should not have been surprised by Stagecoach's comments. But the frantic pace at which the entire sector is cutting jobs suggests companies are now desperately trying to rework their business models. Given that modern rail franchises run for a decade, the visibility on future earnings is poor. Until it improves, the City's thinking may not be more sophisticated than "buses good, trains bad". Stagecoach compares badly with most of its peers on that measure.From star to dufferSo farewell, John Duffield. Yesterday's debt-for-equity announcement from New Star Asset Management didn't say the founder and chairman would be bowing out, but his departure is surely only a matter of time.New Star is to be taken over by its banks and it is hard to see how Duffield could be described as a "key employee" who must be given an incentive to stay. He no longer manages money directly and his reputation for finding talented stock-pickers has been undermined by the turnover in chief investment officers at New Star. More importantly, Duffield will be linked forever with the disastrous £363m return of cash to shareholders, which imposed an intolerable debt on New Star. A clean break would be best for all parties.It is a sad end to a great City career. Sad, too, that Duffield could not admit that last year's refinancing was a mistake. "The cost of this restructuring is regrettably a substantial dilution for ordinary shareholders, including me," he said.That's true but, come on, John, the pain of your dilution is softened by the £150m you took out of New Star in the good days. And there was really no need to load a volatile fund management business with a level of debt that would not have embarrassed a water utility. The word you are searching for is not regrettable, it is avoidable.nils.pratley@guardian.co.ukMortgagesBorrowing & debtEconomic policyCredit crunchguardian.co.uk © Guardian News & Media Limited 2008 | Use of this content is subject to our Terms & Conditions | More Feeds
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Tottenham Hotspur were the league champions. A little known actress called Audrey Hepburn was in the Broadway production of Gigi. More than six years after the end of the second world war, some goods were still rationed, while the first pop music chart was still a year away. This was Britain in November 1951, when the newly elected Conservative government under Winston Churchill raised interest rates from 2% to 2.5%.The move ended the cheap money policy followed by Labour, Tory and coalition governments during peace and war for the previous 19 years, and when official borrowing costs peaked at 17% in the high inflation days of the 1970s, few in the Square Mile would have bet on rates ever going so low again. That was true as recently as this summer, when oil prices were nudging $150 a barrel and the Bank of England was fretting about an inflationary spiral. Many analysts believed the MPC would wait until early 2009 before cutting rates from 5%. Some supported Tim Besley, one of the external members of the MPC, when he voted in August for a quarter-point rate rise. But the past three months have led to a complete change of mood. With the economy in apparent free-fall and financial markets still paralysed by the credit crunch, cheap money is back. Policy is no longer driven by the need to tackle inflation; interest rates are being slashed to avoid deflation and a 1930s-style slump.So, after a 57-year gap, the City expects the monetary policy committee to cut the bank rate from 3% to 2%. Dire news this week from manufacturing, construction and the services sector means it would come as little surprise should the Bank decide to repeat last month's 1.5 point reduction. That would be uncharted water for Threadneedle Street, which has never set rates below 2% in its 314-year history, and for those in dealing rooms today, since few of them can remember the last recession, let alone the world as it was when Clement Attlee led the Labour party and Alec Guinness starred in The Lavender Hill Mob.Andrew Smith, chief economist at the consultants KPMG, said: "Another substantial rate cut is likely. The minutes of the last MPC meeting showed a full two percentage point reduction was considered necessary to meet the inflation target, but only 1.5% was delivered. So a half-point cut is the least we can expect this time. "Desperate times call for desperate measures. The economic outlook is so dire that a larger move would not come as that much of a surprise. It is looking increasingly likely that interest rates are heading towards 0%, and sooner rather than later."EconomicsEconomic policyPolitics pastCurrenciesInterest ratesBank of EnglandInflationguardian.co.uk © Guardian News & Media Limited 2008 | Use of this content is subject to our Terms & Conditions | More Feeds
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Flightline Ltd's collapse left Premier League players stranded at Southampton airport before European tie
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The US government is aiming to stem the fall in house prices by working to lower mortgage rates across the board.
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Imprisoned former WorldCom chief Bernard Ebbers has joined the list of high-profile corporate defendants petitioning for clemency ...
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Former Presidential Candidate is promoting new book in South Charleston
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