Observers had thought the cost of settling the case would be much higher. When the SFO said it would pursue criminal charges back in October, the firm’s stock shed four per cent; analysts assumed that every £100m worth of fines would translate to a 3p reduction in the value of BAE stock, so the 15.2p fall implied the market was expecting a £500m penalty.
Britain’s Serious Fraud Office only extracted £30m from BAE for minor accounting offences, far less than the £300m or more that had been mooted. The firm will also avoid a lengthy, costly and embarrassing trial that would have seen a queue of BAE employees hauled through the courts.
In the US, the fine was far higher at $400m, although the firm has settled without pleading guilty to any bribery charges, instead admitting to conspiring to make false statements to the US government. Had it admitted to bribery, it would have found it virtually impossible to sell arms to the British and US governments, customers which account for 70 per cent of revenues, according to Goldman Sachs.
That said, BAE still faces an uncertain future. Governments are set to cut defence spending, or at least move it away from the big projects BAE relies on. For that reason, investors that sold stock when the bribery investigation began shouldn’t rush to snap it back up.