LONDON--Corporate storm clouds gathered over Spain again Wednesday as
two major European companies joined the ranks of those saying they
were taking steps to reduce exposure to the recession-hit country.
These steps, coupled with negative remarks from executives about the
difficulties of operating in the region and continued grim economic
data, are likely to amplify concerns about the Spanish economy amid
speculation that the government may need to ask Europe for a financial
bailout.
"Peripheral Europe [including Spain] is in a depression-like
environment, and economic revenues dependent on peripheral Europe are
being perniciously punished by the markets," said Gerard Lane, an
equity strategist at Liverpool, England-based Shore Capital. "It's a
difficult environment for any company to operate in."
Depressed conditions in the region, with severely curtailed consumer
spending amid high unemployment and high debt levels, are creating a
negative spiral, making companies shy away from the region, Lane said.
Companies name-checking Spain as a trouble spot Wednesday included
Amsterdam-based financial services group ING Groep NV (ING), which
reported a drop in second-quarter net profit of 22% as it took a hit
to cut its exposure to that country.
In response to the deteriorating crisis in the euro zone, ING also
said it brought down its exposure to Spain to "reduce the funding
mismatch in that country." The total exposure was cut to EUR34.9
billion by July from EUR41.1 billion at the end of the first quarter,
mainly through selling covered bonds and residential mortgage-backed
securities. ING said it led to a loss of EUR234 million.
"[Spain] is going through a massive reduction on government spending,
which is having an impact on the economy at large," Chief Executive
Jan Hommen told a news conference.
Separately, Swedish security services group Securitas AB (SECU-B.SK)
said it may be forced to terminate more contracts in Spain after
significant cuts in unprofitable contracts in the first quarter, amid
fears customers in the country may not be able to pay their bills. In
an interview, Chief Executive Alf Goransson said the company may
terminate further contracts in the region due to faster-than-expected
market deterioration.
By the end of the first quarter, Securitas had terminated unprofitable
contracts in Spain that had an annual value of 450 million Swedish
kronor ($66.9 million).
ING and Securitas are the latest companies that have either cited
Spain as a balance sheet risk or otherwise sought to reduce their
exposure to the region. Last week, International Consolidated Airlines
Group SA, (IAG.LN) the parent company both of British Airways and the
flagship Spanish carrier Iberia, said it has started preparing for the
possibility that Spain could exit the single European currency.
Willie Walsh, IAG's chief executive, said he believes the euro will
survive the current crisis, but that the group has started a "Spain
euro exit road map project," to explore how the country's potential
departure could affect its business.
Iberia's performance, as Spain has grappled this year with a major
banking crisis, is weighing heavily on its parent. IAG warned it
expects to make a small loss in 2012 as the Spanish economy worsens
even as trading conditions at British Airways are strong and the
integration of recently acquired U.K. regional carrier bmi remains on
track.
Walsh said at the time that Iberia accounts for just over one-quarter
of its revenue, of which roughly half comes from Spain.
Meanwhile, U.K. low budget airline easyJet PLC (EZJ.LN) said recently
that it was planning to stop basing aircraft and crew at its Madrid
base, as the base delivered lower returns than other European bases.
According to data released Wednesday by the country's National
Statistics Institute, Spanish industrial production fell 6.3% in
seasonally adjusted terms in June. That compares with a revised fall
of 6.5% in May and of 8.4% in April.
-Write to jessica.hodgson@dowjones.com
(Maarten van Tartwijk in Amsterdam, Niclas Rolander in Stockholm and
Marietta Cauchi in London contributed to this article.)
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(END) Dow Jones Newswires
August 08, 2012 08:15 ET (12:15 GMT)
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