Creditors face Parmalat crunch

BANKS, insurers and creditors on both sides of the Atlantic were scrambling to tally their exposure to the collapsing Parmalat dairy group after it said it would seek bankruptcy protection.

As part of a rescue plan, most of the international units of the firm, embroiled in a growing accounting fraud scandal that has been dubbed 'Europe's Enron', will individually file for bankruptcy protection.

The group was expected to file for protection from creditors as soon as a new Italian government bankruptcy decree is published today.

Up to e10bn (£7.1bn) is thought to be missing from the firm's books, and the hole in the accounts threatens to have devastating effects on both sides of the Atlantic, and on the firm's 36,000 workforce.

American insurance companies are exposed to potential losses of $1.6bn (£900m). The company's primary overseas lender, Bank of America, is thought to have up to e1bn outstanding. Several UK funds, including the high-income bond fund run by Britannic Asset Management, have exposure.

A criminal investigation has also been launched.

The Italian government has intervened with a proposed rescue package, and asked the European Union to waive its rules on State aid to prevent Parmalat's collapse.

The scandal engulfed the maker of Loseley yoghurt last week when it revealed that Bank of America was not holding about e3.95bn in a Cayman Islands unit as it had previously claimed.

It is now thought the company was systematically raided over several years, and that financial documents were faked using computer scanners. Parmalat's claim to have bought back e2.9bn of its own bonds earlier this year is now thought to be bogus.

The Italian government's rescue plan involves the appointment of a special commissioner - likely to be turnaround expert and Parmalat chief executive Enrico Bondi - to draw up a restructuring plan which must then be approved by the Italian Industry Ministry.

Bondi was recently appointed to Parmalat after founder Calisto Tanzi was forced out. Bondi is expected to be formally named to head the rescue today.

US life insurers also hold about $1.6bn in investments related to Parmalat, according to credit rating agency Moody's. Those affected include American International, John Hancock, Prudential and Pacific Life.

The primary auditor for the group is Deloitte. Chicago-based Grant Thornton, auditor to 18 of 200 Parmalat subsidiaries, has denied any wrongdoing and says its Italian operation is probably the victim of the fraud.