Italian food firm Parmalat admits to £2.8bn black hole

Enrico Bondi, the newly appointed chairman of the troubled Italian food group Parmalat, was last night heading a crisis board meeting after the company admitted to a near-€4bn (£2.8bn) black hole in its accounts - a revelation that will undoubtedly leave the business labelled "Europe's Enron".

The move increased fears that Parmalat - a Milan-based company which employs around 35,000 people in 30 countries - could go bankrupt.

Parmalat, which was set up by Calisto Tanzi in 1961 originally as a dairy business supplying milk, now makes a variety of food products from dairy, including Loseley ice cream, to drinks, soups, canned vegetables, and biscuits and savoury snacks.

It admitted yesterday that Bank of America had told Grant Thornton, the auditor of Bonlat Financing Corp - a company that is part of the Parmalat Group and is based in the Cayman Islands - that it did not have an account in the name of Bonlat.

Furthermore, Bank of America "denied the authenticity" of a document dated 6 March that had certified that Bonlat had some €3.95bn as at the end of last year.

Yesterday's revelation of the accounting black hole sent bonds in the company crashing. Its shares - already down 66 per cent from a month ago when auditor Deloitte & Touche questioned its accounts - were suspended from trading on the Italian Stock Exchange.

"It is difficult to see how Parmalat can keep going after this clear indication of extensive financial irregularity," said credit analysts at ABN Amro.

It also comes only five days after Mr Bondi - a highly regarded turnaround specialist - was appointed chairman and chief executive, ousting the founder Mr Tanzi, and tasked with looking into the company's financial situation.

Last week, it repaid a €150 million bond four days late and only with help from banks and the government but then missed a first payment on a required $400m buy-out of investors in a Brazilian unit.

The credit ratings agency Standard & Poor's yesterday cut its corporate credit ratings on Parmalat to 'D' - or default - from 'CC' after the company failed to make a payment on a put option due on Wednesday.

The accounting black hole is likely, however, to have a far wider impact.

Shares in the Italian banks which had lent Parmalat money fell yesterday. Banca Intesa said that its "exposure" to Parmalat totalled €360m while Capitalia said the company owed it something like €393m.

Analysts at Goldman Sachs yesterday cut their earnings forecasts for three Italian banks - Capitalia, Banca Nazionale del Lavoro and Monte dei Paschi di Siena - to take into account their loans to Parmalat.

Parmalat is said to have around €6bn of debt, of which around €2bn is owed to banks, with bondholders owed the balance. The next bond to come due matures in June.

The Italian government, which is likely to come under pressure to intervene, discussed the Parmalat crisis yesterday and plans to revisit the matter next week.