Tesco will face a "full-scale investigation" by the City regulator after overstating its half-year profits by £250 million, as the supermarket battles to regain momentum after the shock allegations that executives cooked the books.
Britain's biggest supermarket said it had been notified by the Financial Conduct Authority (FCA) that it had launched a probe after details emerged in an announcement last week, which at the time had sent shares in the grocer tumbling.
Tesco has already ordered an independent review by Deloitte and said it would "continue to co-operate fully with the FCA and other relevant authorities considering this matter.
The supermarket's UK managing director Chris Bush was believed to be among four directors asked to step aside while the review takes place. The inquiry will look into the way the company treated rebates paid by suppliers and whether they were reported in the right time period.
This comes as its rival Sainsbury's slashed sales forecasts today with a warning that the business is facing its most turbulent period in three decades amid a fierce price war. The supermarket said it was "100% confident" in the firm's accounting practices in the wake of Tesco being probed by the City regulator.
The error in Tesco's accountancy was brought to the attention of the supermarket's general counsel by a whistleblower last month before being passed to new chief executive Dave Lewis.
He carried out a preliminary investigation before issuing Tesco's third profits warning in as many months. Tesco alerted the FCA and asked Freshfields, the group's external legal adviser, to work with Deloitte.
Lewis said the suspensions would allow the company to carry out a "full and frank" investigation and was not disciplinary or an indication of guilt. The former Unilever boss, who took over from Tesco veteran Philip Clarke at the start of September, has placed online director Robin Terrell in charge of running the UK team.
Meanwhile, Sainsbury's said like-for-like sales for the second quarter fell 2.8% and dropped by 2.1% over the first half - warning that this decrease was likely to be mirrored in the second half. It had previously pencilled in growth of 0.2%.
The supermarket declined to reassure investors about the size of its dividend amid speculation that it will be cut, insisting that a strategic review to be announced next month would leave no stone unturned.
Shares fell as much as 4% and are at a six-year low. They have dropped by more than 40% since last November.
New chief executive Mike Coupe said: "The reality is that the market has changed more rapidly in the last three to six months than I've seen in my 30 years in the industry."
He said the business was facing a "perfect storm" of customers shopping around, food prices falling amid a supermarket price war and lower commodity prices, as well as a wider change in consumer habits.
"Customers have more choice today than they have ever had and they are shopping around more than they have ever done. There is top spin added to that by the fact that there is price deflation for the first time in a generation."
Despite the end of the economic downturn, extra disposable income was being spent on eating out rather than grocery shopping, he added. The trend of more frequent, convenient shopping had accelerated, resulting in smaller basket sizes.
Shore Capital said: "Sainsbury's has reported what amounts to a very poor trading update for the company when set against the sector and where the group has come from over recent years."
See also:
- Will Tesco Chief Philip Clarke's Departure Save The Supermarket?
- Tesco Shareholders Slam Bosses' 'Madness' Amid Declining Fortunes
- Sainsbury's Sales Fall Again, But By Less Than Rival Supermarket Tesco
- Tesco Supermarket Suffers Credit Downgrade After 'Weak' Sales
- Ex-Tesco Chief Sir Terry Leahy 'Disappointed' With Supermarket's Decline