Aberdeen shares tumble as split-capital crisis worsens

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The Independent Online

Aberdeen Asset Management's share price tumbled 8 per cent yesterday on speculation that the company is about to announce further cuts to dividends on its split-capital investment trusts.

Aberdeen, where the high-flying Katherine Garrett-Cox is chief investment officer, is the largest manager of split-caps, controlling 19 funds worth £2.5bn. It has already angered investors by slicing the dividend of five splits, including suspending dividends on its Preferred Income and American Monthly Income trusts on Tuesday.

Brokers believe that it is about to announce further bad news on its Leveraged Income fund and European Monthly Income fund, which have 31 March as their year-end. It is expected to either reduce or suspend their dividends.

Leveraged Income looks particularly vulnerable because more than 50 per cent of its investment is in other split-cap funds, whose share prices are suffering across the board due to falling stock market returns. This has exacerbated the high level of gearing that most split-caps have, leading to a high number of them breaching their banking covenants.

Jason Hollands, the deputy managing director of the brokerage BestInvest, said: "It is highly likely that more Aberdeen funds will cut their dividends. Aberdeen is the most exposed investment trust manager to the sector."

Aberdeen would not comment on the impending announcement, saying that it does not release information about a publicly quoted company. But its shares, which closed at 251p, have slumped in recent months due to its high level of exposure to the troubled split-cap sector. Gary Marshall, the sales and marketing director of Aberdeen, said the company was trying to help the boards of split-caps by considering reducing its fund management fees. "We expect to suspend fees in some cases and reduce them in others to play our part in the recovery of the sector," he said.

The move is also being considered by Exeter Investment, which manages a number of split-caps and last week wrote to brokers warning them that their clients investments would be hit by problems in the sector.

Aberdeen has not been alone in reducing dividends. Jupiter and BFS this week cut dividends and Gartmore has already cut some dividends and has warned of more to come.

Ian Overgage, Gartmore's marketing manager, said that the board of Gartmore Absolute Growth & Income Trust would meet soon. "The dividend will be at a significantly lower level than before," he said.

Split-caps are made up of at least two types of shares – those designed for investors who want growth and those for investors who want a regular income. Dividends are normally paid to income or ordinary shares. But they have been suspended in many cases recently because the funds have breached their banking covenants.