Carl Rogberg, plus the other two Tesco executives acquitted of fraud charges, are entitled to be furious.
They have been found not guilty in a case that can only be described as a humiliation for the Serious Fraud Office. And yet all three are named in the deferred prosecution agreement, or DPA, whereby Tesco’s UK subsidiary admitted it had dishonestly overstated its profits and paid a £129m penalty.
The position is perverse. The three men have been cleared by a court, but damned in the SFO’s court-approved agreement with Tesco Stores.
The outcome feels especially unfair when you consider the scale of the SFO’s drubbing in court. In the first case – against Chris Bush, Tesco’s former UK managing director, and John Scouler, the UK commercial food director – the judge said the prosecution case was “so weak it should not be left for a jury’s consideration”. In the case of Rogberg, the former UK finance boss, the SFO offered no evidence.
Bush’s solicitor made the entirely reasonable point that “urgent reform” of the DPA process is required. You bet.
DPAs were imported from the US in 2014 as a way to improve the SFO’s corporate fraud-busting abilities and the appeal for the two sides is obvious. A firm can admit corporate wrongdoing and write a large cheque on behalf of shareholders to avoid a potentially messy trial.
The SFO gets a “win” without having to put its case against the company in front of a jury. But the rights of individuals seem to have suffered along the way. Even when individuals are cleared of all charges, they cannot get a DPA altered – or, at least, the acquitted Tesco trio could not.
Tesco itself, and chief executive Dave Lewis, have questions to answer. Rogberg’s argument that the company put its commercial interests first deserves a proper response. But the SFO is the main body in the frame. A corporate DPA is a hollow victory if it is followed by a fundamentally flawed case against individuals.
Metro Bank stops making sense
You know Metro Bank. It’s one of those upstart “challenger” banks that’s taking on the old guard with supposedly fresh and and exciting innovations. In Metro’s case, these involve welcoming dogs in branches and, so the blurb goes, “speaking in language that actually makes sense”.
Tell it to shareholders. An innocuous-sounding phrase within Metro’s latest trading update – “an adjustment in the risk weighting of certain commercial loans” – barely hinted at a calamity for investors.
Metro was saying it had made a basic cock-up. It had classed a large collection of property loans, maybe £1bn-worth, as medium-risk when they should have been described as high-risk.
The mistake matters because banks have to allocate capital to support loans according to risk. Thus £900m has been added to Metro’s “risk-weighted assets”, an industry-wide piece of jargon, and the bank’s capital ratios have been clobbered. Total capital was 19.5% of assets in September; now it is 15.8%.
That lower level is not an immediate crisis but the share price fell by 39% as City analysts drew two conclusions. First, Metro may need to ask shareholders to top up its capital buffers in time. Second, the bank’s lending to buy-to-let borrowers and suchlike may be less profitable in future.
How did the error happen? Small shareholders – and Metro has lots – will have learned nothing from the statement. It was only later that chief executive Craig Donaldson pleaded that regulatory rules on capital had somehow been “misinterpreted” somewhere. That, though, hardly amounts to a full account.
Equally vague was Donaldson’s assertion that he has “levers” to pull on the capital front. Management, if it wants to restore confidence, needs to start explaining.
A mystery in the patisserie
An enduring mystery at Patisserie Valerie is how on earth the directors, even after fraud was uncovered last October, thought the business would make operating profits of £12m this year.
The estimate came within heavy qualifications, it should be said. It was based on “limited work” and could not be verified, chairman Luke Johnson stressed. And, of course, it turned out to be wrong – or “materially below” the October estimate, Patisserie Holdings had to admit in the end.
How wrong was it? We may never find out but Mark Brumby, analyst at Langton Capital is right when he says this: “It is remarkable that a relatively simple business (you buy your cakes, you sell your cakes) could function at such a fundamentally incorrect level of perceived profitability that it could not be rescued by the package of loans and new stock put forward and recommended by directors and advisers in October last year.” Quite.