LISA BUCKINGHAM: Fraudbuster is no longer a pushover

By LISA BUCKINGHAM
Updated:


The unkind would see resemblances between Serious Fraud Office boss Richard Alderman and a rather simpering schoolma'am. He talks quietly and precisely with an occasional rather coy little giggle. 

Clearly, this is a monumental disguise as his tough-guy approach to BAE Systems demonstrates. Sources close to the defence and aerospace giant say Alderman has run out of patience and wants a guilty plea, with all that entails, by the end of the month.

A few weeks ago I suggested Alderman looked ready to unleash a corporate tsunami. This was clearly an understatement.

Warships created by BAE Systems

Strong talk: SFO boss Richard Alderman is talking the talk to BAE

For BAE, a deal could mean a huge fine, agreeing to have its operations monitored, possible exclusion from European government contracts - particularly difficult as it is a key participant in the Eurofighter project - as well as pleading guilty to an American-style deferred prosecution that could be whipped out at any stage if the SFO felt its behaviour fell short of the mark.

This is high-wire stuff from Alderman. It goes beyond anything we have seen before from the SFO, straying into the (rather more successful) territory of the Wall Street fraudbusters.

And it sets out his credentials to lead a merger with the enforcement arm of the Financial Services Authority should a break-up of the City watchdog come about under a new Conservative government.

I am not suggesting the tactics towards BAE are merely a cynical shortcut to put himself at the top of Shadow Chancellor George Osborne's shortlist, but the use of the plea bargain, probably coupled with a stinging fine, even in terms of a company that would not blink at much below £100million, is eyecatching.

Without wishing to prejudge the outcome of this prize fight, Alderman has put down a marker for those in the City who regarded our fraud police as a pushover.

We are approaching the stage with some companies that no matter how good their business they will never be able to break free of the debt with which they have been shackled by their private equity owners. 

A couple of years ago it looked good to make the balance sheet 'more efficient' by taking advantage of free (well, nearly) and easy debt markets. Now look at some of the results. Financial Mail reported last week that health chain Fitness First had a £124million loss after interest payments of £125million.

Gala Coral, the betting business, earlier this year saw an operating profit of nearly £94million crash to a £397million loss after astonishing interest charges of £500million.

This week we report that sandwich chain Pret A Manger turned in a loss of more than £34million because of interest payments on its debt mountain.

At the start of last year the firm was paying only £600,000 or so in interest on a piffling bank loan. Now it is forking out for £176million of bank debt and £150million of loans from investors.

Finance director Nick Candler argues - with a straight face - that these figures are 'misleading'. About £20million owed to the parent companies is not being handed over, simply rolled up for the future.

Pret's cash flow may be saved today, but unless it makes a pretty stunning stock market debut in a year or so to pay back loans and interest, it will need more than misleading figures to survive.

Much of the fancy financing of private equity bidders always seemed rotten - it was merely hidden while asset values soared. Times have changed. Without a massive transfusion from new lenders, victims of the financial vampires will crumble into dust.

It probably sums it up. A letter from G20 finance ministers in the Financial Times last week called on G20 finance ministers to do something about bankers' bonuses. There will be a lot of talk this weekend and even more talk in Pittsburgh when world leaders gather at the end of the month.

However, as we have seen with global pacts to relieve world poverty and food security - usually agreed over grotesquely sumptuous meals - many are spectacularly ineffective.

There is nothing to suggest that any international agreement on bankers' bonuses - if the most fragile of accords can be reached - will be any more successful.

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