Andersen Losing More Clients
The Andersen accounting firm has lost roughly 10% of its U.S. business since December, and sources say layoffs expected to be announced soon are likely to run into the thousands.
Company spokesman Patrick Dorton said no final decision has been made on the timing or number of layoffs at Andersen, which employs 28,000 people in the U.S. But he noted that layoffs became inevitable after the Justice Department’s decision to prosecute the company for obstruction of justice after employees shredded documents sought last year in the federal probe of Houston energy trader Enron Corp.
“We will work to accommodate those who remain with Andersen as well as those who will have to look for new opportunities,” Dorton said.
The firm continued to lose clients Monday, including several large businesses.
Pacific Capital Bancorp of Santa Barbara, one of Andersen’s larger bank clients, reversed an earlier decision to stick with the accounting firm and said in a regulatory filing Monday that it will seek a new auditor.
SPX Corp., a Charlotte, N.C., industrial products company, rescinded its selection of Andersen. FirstEnergy Corp., a utilities holding company based in Akron, Ohio, also said it was reconsidering its use of Andersen’s audit services. And Newell Rubbermaid Inc. said it will switch to Ernst & Young.
Combined with nearly 100 other client defections, Andersen has lost annual revenue of $400 million to $500 million, according to an estimate compiled by The Times. In previous years the firm’s revenue topped $4 billion.
One senior partner said that the pace of client defections was increasing for two reasons: Companies were concerned that the firm was no longer financially viable. They also feared that the loss of Andersen’s partner firms overseas to rival accounting partnerships will diminish Andersen’s ability to conduct global audits.
Senior executives of Andersen Worldwide are scheduled to meet in London today to name an interim chief executive to replace Joseph F. Berardino, who announced his resignation last week. In addition, Andersen’s U.S. partners will hold a nationwide teleconference Thursday to discuss the state of the firm and problems with its insurance coverage.
Last week Andersen backed out of a March 1 agreement to pay $217 million to settle an Arizona fraud case involving the Baptist Foundation of Arizona. Andersen blamed its insurance carrier Professional Services Insurance Co. of Hamilton, Bermuda.
Attorneys for investors in the foundation, which Arizona officials say turned into a Ponzi scheme that cost 11,000 people nearly $600million, say Professional Services balked at paying the claim because the U.S. Andersen partnership failed to make a $100-million premium payment due in January.
They said the carrier has about $700 million in capital but that the failure by Andersen to make the payment put it in violation of the capital requirements set by Bermuda insurance regulators.
The insurance firm is owned by the separate partnerships that make up the Andersen Worldwide network. It faces multiple liabilities arising from Andersen’s work for the Baptist Foundation, Enron and Global Crossing Ltd., as well as problems with audits by several of Andersen’s overseas partnerships.
Rich Himelrick, an attorney for Baptist Foundation investors, said Andersen still has the cash flow to make the premium payment, a move that would then lead to the settlement of one of the large claims against the firm.
A trial in the case, canceled when the settlement deal was reached, has been scheduled for April 29 in Arizona.
The pending layoffs and constant erosion of Andersen’s client base come even as former Federal Reserve Chairman Paul A. Volcker tries to implement a rescue plan for the firm.
Volcker’s plan is dependent on getting the Justice Department to dismiss or suspend its indictment. He also must reach a settlement agreement with the class-action plaintiffs who have claims against Andersen for its Enron work.
One partner observed that each task has gotten increasingly difficult considering Andersen’s diminishing financial position and a Justice Department backlash against the firm for perceived political pressure to give Andersen some relief.
He said Andersen’s best hope may be in winning the May 6 criminal trial in Houston, if it can survive the six to eight weeks between now and the expected end of the trial.
