Split cap scandal claims new victim

THE FALL-out from the split capital investment trust scandal dogging the investment industry has claimed another victim. Exeter, one of the firms at the centre of the furore, is to merge with specialist investment firm iimia.

The troubled group, which last year sold its unit trust business to fund management firm New Star for £9m, will also move down from the main market to the Alternative Investment Market.

More than 50,000 small savers lost hundreds of millions of pounds on split-trusts which were marketed by some advisers as low-risk investments but in fact borrowed heavily and took out cross shareholdings in each other's funds. Last year, the Exeter admitted that of 4,000 split cap complaints to the Financial Services Authority, 200 were from its customers.

Exeter is one of 21 firms being investigated by the City watchdog and may yet face a fine or demand for compensation. The new group would be held liable.

Iimia, which already manages £288m of funds just two years after launching, plans to use its expertise in investment trusts to turnaround the performance of Exeter's nine trusts, most of which are split capital funds. The combined group will run £500m-worth of funds.

'We have been discussing the possibility of this merger for some time and have been compelled by the strategic fit of the two businesses,' said Michael Phillips, chief executive at iimia.

The board and staff will hold 58% of shares in the new company. Exeter investors will receive 62 shares in the new group for every 100 they own.

Exeter shares, which plunged to a low of 40p in March last year, were up 5p at 102 1/2p.