Few outside of Italy will have probably heard of Italian food multi-national Parmalat. That's about to change. Almost $5bn appears to have disappeared from the group's coffers and Bank of America has been pulled into the scandal. The affair is already being called 'Europe's Enron' in the press.
As Reuters reports, Paramalat confirmed Friday that it had discovered a $4.9bn hole in its accounts. This is apparently down to the fact that a document showing investments and cash which the group thought were held in the name of a subsidiary in the Cayman Islands, Bonlat, appears to be a forgery.
Grant Thornton, Bonlat's auditors, claim that they received a document earlier this year, which they thought was from Bank of America, confirming the existence of the account and investments. The auditor apparently used this information to certify Bonlat's 2002 balance sheet. The bank was apparently asked to reconfirm the details again earlier this month and is said to have refused to do so on the basis that the account in question did not exist. The original 'Bank of America' confirmation now looks to have been a forgery and the $4.9m appears to be missing. An analyst at Commerzbank is quoted: 'To say something smells fishy would be the understatement of the year'.
Italian Prime Minister Silvio Berlusconi told a news conference on Saturday that 'the situation is very serious. The government will intervene to bail out the company and save jobs'. Parmalat is now being investigated by Milan public prosecutors for possible balance-sheet fraud.
In the meantime, Bloomberg quotes unnamed 'people familiar with the situation', who have said that Parmalat has hired US law firm Weil, Gotsal & Manges to advise it on a possible bankruptcy reorganisation. Debt-restructuring expert Lazard is thought to be already working with the group.
Grant Thornton and Bank of America will welcome this latest 'scandal' like a hole in the head. A spokesman for the auditor was quick to point out that 'the UK firm is not involved in this and is completely separate from Italy'. Although Bank of America looks to be just an innocent party on the periphery of the affair, it could no doubt do without the publicity.
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