The meltdown in Latin America continues to take its toll much farther afield. Case in point: Spanish companies, which are feeling an ongoing pinch from their investments in the region. As if Argentina’s collapse and Uruguay’s wobbles were not worrying enough, some of Spain’s biggest names are also taking a clobbering because of their exposure to Brazil. Over the past 10 years, Spanish firms have poured more than €50 billion in Brazil — double the amount invested in Argentina — particularly across the telecom, banking and energy sectors. But the Brazilian real has gone into a downward spiral — the currency has lost one-third of its value since April — and taken some Iberian earnings along for the ride. Last month, Spanish giant Telefónica cited currency woes as a reason for its reported 23% fall in Latin American revenues in the first half of 2002. Last week SCH, Spain’s largest bank, registered a 13% drop in first-half earnings and said it expected worse to come in the second half. Adding to the troubles: the prospect that come October’s elections, a left-wing government could take power in Brazil, bringing with it tax cuts and an increase in public spending. At worst, analysts fear this could precipitate a Brazilian default on $100 billion in government debt — of which some Spanish banks, like SCH, still hold a sizable chunk.
INVESTMENT
Caught in a Bear Trap
Swiss multimillionaire and bow-tied shareholder activist Martin Ebner, who has made a career out of being a thorn in the side of Switzerland’s corporate establishment, sees himself as the Swiss equivalent to that patron saint of U.S. shareholders, investor Warren Buffett. Lately, though, Ebner has had a few setbacks. Last week he was forced to sell controlling stakes in four key investment funds. BZ Group, Ebner’s holding company, made the sale after the share prices of the firms in which the funds held stock plunged. But while Ebner may have always pushed hard for greater corporate accountability — he is credited with the shake-up of the Swiss banking industry — his successor may not have the same zeal: Zürcher Kantonal-bank, which bought majority voting rights in the stakes, has said already it will adopt a less activist stance than Ebner’s.
At least Buffett is carrying on the shareholder mission; he is currently insisting that stock options be recognized as costs. The latest U.S. corporation to agree? GE.
THE BOURSE
Selling Up and Away
The French government last week announced plans to reduce its 54.4% stake in flag carrier Air France. It would be the first step in a program of part and full privatizations to raise state funds.
Selling Up In Smoke
The Italian government began its own round of privatizations as it invited bids for the state-owned tobacco monopoly Ente Tabacchi Italiani (ETI). It hopes to raise around €1.5 billion from the sale.
Bosses Busted
Two former WorldCom executives were arrested by FBI agents last week for their alleged role in the $3.85 billion accounting fraud that led to the company’s collapse.
Media Probe
The U.S. Justice Department is investigating accounting practices at Time’s parent, AOL Time Warner. The SEC is conducting a similar inquiry.
INDICATORS
But Are They Fattening?
The European Commission gave clearance to French cosmetic company L’Oréal and Swiss food giant Nestlé to market food products designed to improve the appearance of hair, nails and skin. The beauty snacks could hit the shelves as early as next year. What’s next, nail polish that can cure the common cold?
Natural Boost
Britain’s organic farmers welcomed a government plan to double the amount of organic produce grown in the country. The scheme, which will give the farmers extra funds in recognition of the environmental benefits of their work, aims to reverse an unhealthy trend: because of increased competition from imports, 30% of organic farms in the U.K. are running at a loss, compared with 19% five years ago.
Fiorentina Footie Fiasco
Italian football authorities gave former glamour club Fiorentina the boot from Italy’s Serie B competition after the club, reportedly facing bankrupt-cy, failed to meet a deadline to arrange cover for its $22 million debt. Fiorentina has been in difficulty since 1999.
BOTTOM LINES
“Because they can earn more money on the dole, Ma’am.”
Barry Mitford, deputy page to Queen Elizabeth, explaining to her why five footmen quit their jobs
“We tell Russia, as one friend to another, ‘You’ve got a problem here.’ “
Alexander Vershbow, U.S. ambassador in Moscow, on Russia’s need to deal with corruption
“Enron would never have been discovered in Europe.”
James Leisenring, who is helping draft International Accounting Standards, on the Continent’s lax regulations
“The afro.”
Tito Mboweni, South African Reserve Bank governor, on what the African Union’s proposed common currency should be called