BT pension firm's Parmalat alert

THE manager of BT's pension fund demanded a full investigation into Parmalat's accounts a year before the Italian dairy group collapsed owing £10bn, the Financial Mail on Sunday has revealed.

Hermes, which has £44bn of funds under management, raised the alert in a letter to accountancy firm Deloitte & Touche, which signed off Parmalat's main accounts, and a board of independent auditors. Both gave Parmalat a clean bill of health.

The fund manager is understood to be preparing legal action against Deloitte and other key players in the Parmalat scandal, which has been dubbed 'Europe's Enron'.

In its December 2002 letter, Focus Asset Management, the aggressive investor arm of Hermes, spelled out its concerns about the treatment of a series of Cayman Islands investments in the accounts that Hermes considered to be 'racy', according to a source familiar with the situation.

It was the discovery late last year of a £2.8bn hole in a Cayman Islands subsidiary that triggered Parmalat's collapse.

The Hermes letter was a formal complaint under an Italian law that allows big shareholders to demand an immediate and thorough probe of any concerns. Hermes owned 2% of Parmalat, but sold it less than a fortnight before the company went under.

The most devastating questions so far as future litigation is concerned were over 'related party transactions' with companies close to Parmalat founder Calisto Tanzi. He is in jail, though no charges have yet been made.

The Hermes letter demanded to know of any undisclosed transactions. It also asked for an examination of how footballers at Parmalat-owned Parma were valued. 'They were somewhere north of 200m euros [£137m] in the accounts as intangible assets and this seemed optimistic,' a source said.

But Hermes was told: 'The irregularities notified in the report were unfounded in both fact and law.' The reply came in a report from Parmalat's Board of Statutory Auditors attached to the 2002 annual report and dated 14 April, 2003 - the same date Deloitte signed off the accounts.

A source said: 'Soon after, Hermes wrote demanding answers to some serious questions about the accounts. It was misled about the true financial position.'

Because Hermes requested a review of the accounts and brought its concerns to Deloitte, legal experts say it has enhanced its chances of recovering money through the courts.

Hermes, which refused to comment on its relations with Parmalat, is thought to have lost about £25m on its investment. The loss to BT's £28bn pension fund is thought to be less than £5m.