Shares in New Star Asset Management, one of the UK’s best known fund managers, plunged nearly 43% yesterday as analysts warned it had just days to negotiate a deal with its banks to avoid potentially devastating outflows of its funds.

The FTSE-listed group announced before the market opened that it was in talks with HBOS, Lloyds TSB, HSBC and Royal Bank of Scotland, about a debt-for-equity swap that would leave the banks owning a majority stake in the ailing group.

The company was left red-faced after it made public a request before the market opened yesterday for trading in its shares to be suspended that was rejected by the Financial Services Authority.

It had argued that trading while talks with its lenders continued would create a false market as rumours circulated regarding the outcome of those talks. But the FSA refused the request and shares plunged as soon as the markets opened.

Financial Times, Daily Telegraph