Thousands hit as trust goes bust

THE £13bn split capital investment trust industry was plunged into deeper crisis when for the first time in living memory an investment trust appeared to be going bust. Thousands of small investors are likely to lose all their money.

And for the first time bank loans to some of the most stretched 'splits' appeared to be in doubt, following Wednesday's decision by Quilter Global Enhanced Income to suspend its shares.

HBOS, Royal Bank of Scotland and Lloyds TSB are thought to be some of the biggest lenders to splits - a type of investment trust which came to prominence at the peak of the stock market bubble two years ago. More than 40 splits were launched within a year as fund managers marketed the investments, which have two or more classes of shares, as ideal for investors saving for school fees or seeking high income.

More than 30,000 investors piled in. But the trusts have been hit by high gearing, exposure to tech shares and a tendency to invest in each other - an arrangement that has attracted the scrutiny of the Financial Services Authority.

The Association of Investment Trust Companies now admits that several trusts are unlikely to return any capital at all to shareholders. The Quilter trust, which is chaired by Nicholas Durlacher, former head of the Securities and Futures Authority, was valued at £26m before suspension and owes £22m in bank borrowings.

Shares in Aberdeen Asset Management, one of the biggest managers of split trusts, slumped 15p to 265p on worries about the sector. Some investors are reportedly considering legal action, claiming they were victims of mis-selling. On Wednesday Exeter Investment Group, another major player, issued a profits warning which also sent its shares plunging.