Slater & Gordon Limited (ASX: SGH) this morning announced a claims management services agreement between Swinton Group and its newly acquired professional services division (which was formerly part of Quindell Plc) will be terminated.
In the United Kingdom, Swinton is a reasonably well-known provider of road traffic vehicle and general insurance products that has reportedly been working with Slater & Gordon's professional services division since December 2012.
The law firm provided little other detail on the reasons for the termination of the agreement other than to say it was not expected to be material to financial year 2016 earnings.
The entrepreneurial law firm's 2015 has been dominated by its decision to pay $1.2 billion for the professional services division of UK AIM-listed company Quindell.
Since news broke that Slater & Gordon was reportedly interested in the acquisition it has been hit by a series of questions around accounting errors, regulatory oversight, and the merits of the Quindell deal. Indeed, scrip in what remains of Quindell has been in a trading halt for around one month now as the company struggles to get its own accounts in order for public release.
Stocks with regulatory and accounting risks make a tempting target for short sellers that have been unsurprisingly active around Slater & Gordon recently.
It looks like UBS is a central player, according to notifications provided to the stock exchange. The European investment bank acts as the prime broker for the hedge funds who are shorting the business, as prime brokers lend hedge funds securities in return for fees usually based on basis points on the value of assets lent, or other services.
The short-term outlook for Slater & Gordon appears tough and the decision to make the Quindell purchase always seemed questionable given the well known issues around the business.
One of the few bright spots for Slater & Gordon would appear to be the significant appreciation of the UK pound versus the dollar over the last six months. This though is likely to be of little note until the law firm can decisively put any perceived accounting and Quindell legacy issues behind it.
