Bill set to rise to £1bn as split capital talks founder

The total bill for the split capital trust scandal could reach £1bn if the firms involved refuse to settle with the Financial Services Authority, industry sour- ces are warning.

The chances of a global settlement involving all 21 fund managers and brokers caught up in the scandal were scuppered last week. John Tiner, chief executive of the FSA, had demanded £350m from the companies, but their maximum compensation offer was £120m.

The City regulator is still in talks with three firms that are willing to settle individually, and is threatening to take "enforcement actions" against the others. This would involve a fine, and forcing compensation payments.

The FSA said that it expected any fines and compensation to add up to a lot more than the £350m it was willing to accept. "The £350m figure included latitude for settling quickly," said an FSA spokesman.

A senior industry source ex- pects the amount demanded in fines and enforced compensation to be as much as £1bn. "The final bill for those who don't settle could be three times the settlement offer," he said.

The split capital trust scandal involved scores of investment trusts that were issued with more than one different class of share, largely in the mid-1990s. It emerged that many were investing in other trusts - what was known as the "magic circle" - so that when the market started falling, the value of the trusts collapsed. More than 20 have now gone into administration.

The FSA estimates that the amount lost by retail investors is in excess of £500m and it is pressing for the firms that managed and sold the trusts to compensate investors.

Among the firms involved are Aberdeen Asset Management, the largest manager of funds, ABN Amro, UBS, HSBC, Brewin Dolphin, Collins Stewart and New Star Asset Management.

New Star is planning to float on the stock market later this year. Managing director Howard Covington admitted that an enforcement order would be inconvenient but said that it would have a "negligible effect" on the flotation.