Last updated: September 9, 2013 8:51 pm

Deloitte fine shows advisership is no shield from Furies

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Penality shows how times have changed for the ‘Big Four’

The Furies of Greek mythology have a counterpart in a tribunal of the Financial Reporting Council, which has just fined Deloitte £14m and a former partner of the firm £250,000. The avenging goddesses eventually caught up with anyone who had outraged all decency by killing their father, marrying their mother or serving red wine with fish. The tribunal’s investigation into alleged conflicts of interest in Deloitte’s advice to MG Rover has been a similarly slow burn. The Birmingham carmaker went bust with 6,000 job losses in 2005.

Deloitte and Maghsoud Einollahi, a deals expert, would probably have got off more lightly had the tribunal moved faster. The UK regulatory environment has become more punitive. A cap on fines for accountancy groups has been abolished.

Good. Compared with banks, accountants have escaped too lightly when judged to have broken the rules.

The fines dished out by the tribunal will not hurt their recipients financially – Deloitte is a Big Four firm and will pay Mr Einollahi’s penalty for him. But the punishments are large enough to show abacus rattlers that accountants’ purely advisory status does not insulate them from retribution when they act badly.

The tribunal ruled that Deloitte and Mr Einollahi failed to consider the public interest sufficiently in advising MG Rover and the Phoenix Four, businessmen who bought MG Rover from BMW for £10 in 2000. The tribunal was right. The quartet would never have succeeded – and then had the chance to extract sums estimated at over £40m – without public and political support.

Deloitte and Mr Einollahi were enthusiastic promoters of schemes to make money for the four men, as chronicled in a government-sponsored report in 2009. One wheeze involved the purchase of Rover’s finance arm, worth £14.3m in profits, according to the report. Another deal used the car company’s tax losses to generate a £7.7m benefit, the report concluded.

Deloitte has responded resentfully to the ruling. Penitence would be more appropriate. The firm could easily convey this without resorting to the hideous acts of self-mutilation required by the Furies. A dignified press release would do it.

Pear-shaped sugar beet

There are few synergies between sugar production and clothes retailing. Frocks cannot be stitched together from sugar beet leaves or models deployed as tractor drivers, even in suitably stylish wellies. Yet the two activities drive the profits of FTSE 100 group Associated British Foods, where a second-half trading update illustrated the virtues of diversification.

ABF was bearish on sugar, which produced half its profits from continuing businesses in 2012. A price spike in the EU, caused by a quota system and high world prices, is subsiding. The group has the scale to benefit from impending deregulation. But 20 per cent margins may never be seen again.

In contrast, cheap apparel chain Primark is growing strongly. Sales should be up 21 per cent this year. The brand is well established as an outfitter to the thrifty, supporting margins of 10 per cent.

Diversification makes the group, part-owned by a family charity, more manageable for hereditary ruler George Weston and a safer bet for investors, who hate profits volatility. But the analyst’s lot is not a happy one. He or she must fathom five disparate divisions (the others are grocery, agriculture and ingredients). The need to do so will rise as sugar profits fall.

Yet Investec analyst Martin Deboo sees no conglomerate discount in the valuation. S&P Capital IQ quotes a forward earnings multiple of 19 times, ahead of sweeteners company Tate & Lyle at 13 times and behind fashion group Supergroup at 21.5 times. Which just goes to show you can compare apples and pears.

Carl’s snarl

Carl Icahn asked supporters to follow him on Twitter as he admitted defeat in his battle to stop the buyout of Dell. The activist has more than 75,700 followers, lured by his fame and the tagline: “Some people get rich studying artificial intelligence. Me, I make money studying natural stupidity.” But he would do even better if he adopted the customs of digital natives. So far his tweets have inclined to seriousness, for example: “Yesterday we filed a 21-page brief explaining how the Dell board has failed in its fiduciary duty.” Lighter content is needed – support or derision for contestants in America’s Got Talent or links to Instagram snaps of the septuagenarian’s dessert next time he has dinner with Tim Cook of Apple.

However, Mr Icahn can rely on followers to supply the quotient of insane abuse that is a key element of Twitter. “Tell everyone Dell is racist and that they hate women,” reads one crazed contribution.


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