Four of Britain's largest banks are poised to seize control of New Star Asset Management, John Duffield's troubled fund manager which this morning requested a suspension of trading in its shares.

New Star's management led by Mr Duffield, the chairman, remained locked in talks with its lenders today over the group's £240 million of net debt.

The discussions are understood to revolve around a debt for equity swap which would see HBOS, Lloyds TSB, RBS and HSBC as well as National Australia Bank take control of the majority of the company's equity in exchange for a reduction of its debt to zero.

Following steep falls in its share price in recent days, the current market value of New Star is less than £20 million.

The shares slumped a further 68 per cent to 4.5p this morning, after the UK Listing Authority rejected New Star’s request to suspend trading in its shares.

New Star's shares have lost 96 per cent of their value in the past 12 months. The stock has suffered particularly in recent weeks after a string of redemptions by institutional clients cut its funds under management to £14.3 billion from £19.8 billion as at the end of June.

On November 14, following an earlier round of talks with its lenders, New Star said that it had accepted tougher terms on its £236 million of bank debt, which included an increase of 1.5 percentage points on the interest rate it was paying.

It is understood that New Star's lenders were prompted to intervene in the wake of last week's decision by the firm to suspend investor redemptions in its International Property fund, one of two flagship real estate funds, after institutions rushed to withdraw their capital.

It is likely that an agreement over a debt for equity swap will be reached over the next several days, although New Star faces the additional risk that some of its prized star fund managers will head for the exit.

New Star will also need to convince its institutional investors to stay with the company.

Mr Duffield, one of the few household names in fund management, founded New Star eight years ago after selling Jupiter, another firm he founded, to Commerzbank, the German bank.

He listed New Star on London's junior AIM market in November 2005, when the shares were priced at 225p and the company valued at £700 million.

New Star's debt burden was taken on last April in order to facilitate a return of cash to shareholders. At the same time, New Star moved to the London Stock Exchange's main market and Mr Duffield and his family interests sold their stake down from 20 per cent to 12.5 per cent.

Mr Duffield still holds a direct personal interest equivalent to about 7 per cent of New Star. Like other shareholders he has seen the value of his holding collapse in the past year.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive