updated 12/22/2003 8:43:16 AM ET 2003-12-22T13:43:16

The hole in Parmalat's accounts may be considerably bigger than the Italian dairy group revealed on Friday, people familiar with the situation said at the weekend.

Parmalat last week said €3.95 billion ($4.88 billion) it once claimed to be in a Bank of America account had disappeared after the bank denied any record of the account. But people familiar with the group's affairs said the true figure could be more than €7 billion.

The Bank of America account was claimed to be held by Bonlat, a Cayman Islands-based subsidiary of Parmalat. Grant Thornton, Bonlat's auditor, said it had received documentation from BofA certifying the account's existence.

Italian magistrates opened a criminal inquiry on Friday and spent most of Saturday gathering documents at Grant Thornton's office in Milan, the auditor for many of Parmalat's subsidia ries.

Grant Thornton on Sunday said it had first signalled accounting discrepancies at Bonlat in June to Deloitte & Touche, the auditor of Parmalat's consolidated accounts. It also warned Consob, the Italian stock market regulator. Grant Thornton previously said it received several documents from BoA regarding the €3.95 billion account. BofA could not be reached for comment on Sunday. The bank last week said it filed affidavits with the US Securities and Exchange Commis sion, which Consob has asked for help.

Fears that Parmalat could explode into one of Europe's worst corporate scandals ignited two weeks ago. The group, which claimed to have €4.2 billion in liquidity, delayed reimbursement of a €150m bond that matured on December 8, and succeeded only with emergency help from banks and the government.

The previous weekend, however, several banks were warned by Calisto Tanzi, the Parmalat chairman and chief executive who was ousted last Monday, that the company could not reimburse any of the €7 billion in bonds and off-balance sheet debt the company claimed to have at the time. Many bankers and analysts fear the figure could be still higher.

Corriere della Sera, Italy's leading newspaper, yesterday reported that Mr Tanzi on December 8 told executives from The Blackstone Group, the large private equity firm, that Parmalat had not retired €2.9 billion in debt it had claimed to have done in its financial statements. A spokesman for Blackstone declined to comment.

Parmalat's new management, installed one week ago, is expected to file for bankruptcy protection either today or tomorrow, a person close to the group said. Under Italian law, Parmal at can seek protection from creditors in two forms, but neither can protect it from action outside Italy.

Silvio Berlusconi, Italy's prime minister, said the government would take measures to "above all save the industrial part of the company and jobs" and "separate finance from indust ry".

Copyright The Financial Times Ltd. All rights reserved.


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