BAE shares soar after Saudi fraud probe called off

13 April 2012

The value of BAE Systems soared by nearly £900 million today after a long-running fraud probe into an arms deal with Saudi Arabia was abandoned.

Shares in BAE were around 7 per cent higher after the Government ended an investigation by the Serious Fraud Office into a 'slush fund' allegedly used by BAE to pay Saudi dignitaries to secure contracts.

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Ministers faced claims that they had succumbed to Saudi threats to pull out of a massive deal to buy 72 Eurofighter jets from BAE, Britain's biggest defence company.

Widespread reports have suggested recently that the Saudi royal family was embarrassed by the SFO probe and was prepared to ditch the contract in favour of a deal with France.

Shares in BAE have fallen by as much as 10 per cent in the last month as investors feared the worst for the Eurofighter deal, but the company was back in favour today after last night's surprise statement to the House of Lords by Attorney General Lord Goldsmith.

BAE saw its value soar from £12.79 billion to £13.65 billion today.

Lord Goldsmith insisted the decision was made in the interests of national security and that economic and commercial interests played no part.

He told peers that the Prime Minister and other ministers were concerned about its impact on 'cooperation' with Saudi Arabia.

"They have expressed the clear view that continuation of the investigation would cause serious damage to UK/Saudi security, intelligence and diplomatic cooperation, which is likely to have seriously negative consequences for the UK public interest in terms of both national security and our highest priority foreign policy objectives in the Middle East," he said.

"The heads of our security and intelligence agencies and HM Ambassador to Saudi Arabia share this assessment."

The SFO echoed Lord Goldsmith's claim that commercial and economic interests were not a factor.

In a statement, it said: "It has been necessary to balance the need to maintain the rule of law against the wider public interest.

"No weight has been given to commercial interests or to the national economic interest."

Lord Goldsmith added that there were serious doubts over whether the investigation, focusing on the £40 billion al-Yamamah contract secured by Margaret Thatcher, would result in a successful prosecution.

Liberal Democrat MP Norman Lamb, chief of staff to party leader Sir Menzies Campbell, said it was an 'outrageous and disgraceful' decision.

"Coming straight after a threat from the Saudis to withdraw from future business, this completely undermines the UK's reputation on good governance," he said.

"How on earth can we lecture the developing world on good governance when we interfere with and block a criminal investigation in this way?"

He added: "I think pressure has been applied. I think it's because the inquiry has been making substantial progress that it's been brought to an end."

There were also questions about the timing of the announcement.

"A suspicious mind will wonder at the coincidence of the timing of the police discussion with the Prime Minister on the same day as the Stevens report into Diana and this urgent statement about the Serious Fraud Office," said Conservative former minister Peter Bottomley.

But Labour MP Lyndsay Hoyle, many of whose Lancashire constituents work for BAE, said they were celebrating 'an early Christmas present'.

"Quite rightly they were happy with the news," he said, adding that it was a boost to a wide range of companies including Rolls-Royce, which builds engines.

"Tens of thousands of jobs were put at risk by a 1980s' issue."

He said that the investigation had been going on for too long and there was no evidence of any wrongdoing.

"Jobs would have gone," he added.

The Eurofighter was developed by a consortium of companies in Germany, Spain, Italy and the UK, with BAE Systems playing a leading role.

The Eurofighter contract - agreed by the Government and Saudi Arabia last year - was BAE's biggest export deal for 20 years. BAE employs 9,000 workers at its aircraft division in Warton, Lancashire.

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