Mitchells & Butlers finance director Karim Naffah has quit the company after a disastrous hedge and the credit crunch led to an extraordinary £274m loss.

The pub company revealed today that as part of a property venture, it had taken out hedges against interest rates and inflation. But in the course of carrying out the transaction, the market turned against M&B, leaving it with only the hedges.

'At the end of last financial year, an exceptional accounting loss of £155m post tax was booked in respect of the hedges. The above settlement of the majority of the hedges results in a further £119m post tax exceptional loss which will be taken in the current year,' the company said in a statement.

Naffah offered his resignation and the board accepted, it added. The chief executive also tendered his resignation but was turned down. Jeremy Townsend, currently deputy finance director, takes over from Naffah.

'The process was started in mid-July, two weeks before the planned announcement date of the transaction. This was on the banks' advice that the hedging could take some time to execute given the relatively low liquidity of the inflation swaps market,' the company said.

'Whilst the details of the debt package were being finalised with the banks, there was a material adverse change, with debt market conditions suddenly deteriorating in late July and the credit-approved debt terms from the banks were withdrawn. This left Mitchells & Butlers and R20 with hedge instruments in place but unable to fund the transaction,' it added.

M&B could have held on to the instruments but decided that it was not a risk that it should be running.

All of the executive board have forgone their bonuses as a result of the calamity.

Further Reading:

Read the stock exchange announcement