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Market shrugs off Lend Lease fraud case

Lend Lease’s shares have opened marginally higher after the group admitted it had been involved in over-charging clients in the US.

In a short statement to the ASX today, in response to the news which broke in the US on Tuesday, its directors said that under a Deferred Prosecution Agreement no charges will be prosecuted against Lend Lease's Bovis arm if it complies with the agreement.

‘‘Payments to be made under the agreement are consistent with the provisions previously made including the provision in the accounts for the half year ended December 31, 2011.

‘‘The investigated activities relate to past billing practices and the use of minority business enterprises and conduct which no longer occur.’’

Lend Lease said that over the past three to four years, it had replaced the senior management team in the US including local management in New York.

‘‘Lend Lease has put in place more rigorous processes and an enhanced compliance regime in the US,’’ the group added.


Simon Wheatley, senior REIT analyst at Goldman Sachs Australia, said while the majority of the financial impact of this adverse finding is understood to already be factored into his estimates, ‘‘there appears to be further expenses that have not yet been allowed for. As such, the news is a negative’’.

‘‘Even more so perhaps is the reputational issue. Lend Lease previously had a high win rate for US government contracts in the north-eastern US. We would be surprised if these findings and comments do not damage that position resulting in a very slow recovery to normalised earnings from this division,’’ he said in a note to clients.

‘‘We currently assume it will take five years for US construction earnings to normalise and we’re hoping a turnaround in construction activity would present an upside risk to this assumption.’'

Lend Lease shares opened 0.5 per cent higher at $7.39, before dropping back to trade slightly lower in midday trade.