BT's accounting black hole to be investigated by Italian prosecutors

 
Oliver Gill
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BT chief exec Gavin Patterson said the group was "deeply disappointed with the improper practices"

Italian prosecutors have launched an investigation into BT’s £530m accounting black hole, according to reports.

The scale of the scandal today wiped £7bn off the telecom giant’s market capitalisation. BT’s shares fell over 20 per cent yesterday, closing at 303p.

And after markets closed, Reuters cited two sources saying Milan prosecutors have started a probe into the company’s Italian unit.

Read more: The Italian job: Analysts react to BT's £530m accounting slip-up

Last October BT revealed an internal investigation into “historical accounting” errors had unearthed £145m of writedowns. But after calling in external consultants from KPMG, the FTSE 100 firm said yesterday that writedowns had ballooned to £530m.

Surprise

Earlier today, investors were caught on the hop by the news that BT was grappling to pinpoint the cause of the problems at its Italian subsidiary with shares falling by nearly a fifth.

“I was really surprised when I came in this morning and saw the news,” said Richard Marwood, a senior fund manager at Royal London, one BT’s largest shareholders.

“Before we had today, people were concerned about the state with Ofcom and Openreach. Clearly the pension fund has been a bit of an ongoing issue and now you’ve got these trading issues.”

Read more: BT shares dive 19 per cent as it reveals Italy problems will cost it £530m

A number accounting irregularities were at play in Italy, including the use of complex debt factoring structures to mask the true performance of the business.

The company said the investigation was “substantially complete” but worries lingered that more bad news could be on the cards.

“While it’s [the investigation] ongoing and given the way it has grown so far I think we’d be overly complacent to think it couldn’t go up,” said Marwood.

Gavin Patterson, chief executive BT said:

We are deeply disappointed with the improper practices which we have found in our Italian business.

Accounting disturbance

Meanwhile, Marwood explained why the news of Italian accounting problems had disturbed the market so much.

People are always very concerned when you get accounting problems.

At the end of the day, as investors all we can go on is the information that we are given in the financial releases. If you start to question that, you have to get a bit more worried.

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While Italian authorities have opened investigations, UK regulators were monitoring the situation carefully.

A spokesperson for the Serious Fraud Office told City A.M. it was not currently investigating the matter but would not count out doing so in the future.

Accounting watchdog, the Financial Reporting Council (FRC) said: "We are aware of BT's statement about its review of accounting issues in its Italian business and we will consider if these matters require the FRC to investigate whether the auditors fulfilled their duties."

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