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Euro, LatAm Countries Hurt by Asia

February 13, 1998

NEW YORK (AP) _ From banks to brewers and telecommunications giants to petrochemical concerns, companies around the globe are suffering because of the Asian financial crisis.

Just like their U.S. competitors, European, Latin American, Canadian and Australian companies heavily involved in Asian countries are seeing earnings pinched.

Big name multinationals like Royal Dutch-Shell, Germany’s Deutsche Bank, Dutch beer maker Heineken and Canada’s Seagram are already reporting lower earnings or predicting them for the months ahead. Smaller companies, ranging from Chilean copper producers to Danish clothing makers and Mexican glass manufacturers, also are being hurt.

``It’s a global phenomenon,″ said economist David Hale at Zurich-Kemper Investments in Chicago.

Now, companies elsewhere are releasing similar results.

On Thursday, Royal Dutch-Shell, the Anglo-Dutch oil and natural gas giant, said its October-December earnings tumbled 32 percent, partly due to lower oil prices and the Asian turmoil. Prices for crude oil have plunged in recent weeks because of overproduction by the Organization of Petroleum Exporting Countries and lower demand from Asian countries.

``Any multinationals who ... have seen a large part of their growth in revenues in recent years coming from sales to Asia will be hit because of the drop-offs in demand,″ said economist Devi Aurora at Standard & Poor’s DRI in Lexington, Mass.

As the economies of Thailand, Malaysia, South Korea and Indonesia _ hardest hit by the crisis _ are slowing, governments, businesses and consumers have less money to spend on everything from pricey construction projects to inexpensive household goods.

At the same time, Asian companies, because their local currencies have fallen sharply against the dollar, the British pound and other major currencies, will be able to sell their products more cheaply abroad, giving them a competitive edge. European and other non-Asian exporters will likely find it harder to peddle their goods.

Analysts are expecting a wide range of global companies to feel the squeeze, from banks and financial services companies to exporters of chemicals, autos, steel, ships, computers and agricultural products. Airlines and tourism companies, too, are seeing a drop-off in business in the region.

European banks are particularly vulnerable.

Standard & Poor’s, the credit rating agency, recently estimated European banks had rung up as much as $130 billion in loans to banks, government agencies and businesses in Thailand, South Korea, Malaysia and Indonesia. Of that, the banks stand to lose up to $20 billion in bad loans, it calculated in its Credit Week magazine.

About 20 European banks have 85 percent to 95 percent of the total loans outstanding in the four countries. It singled out the French banks Credit Lyonnais, Societe Generale and Banque Nationale de Paris as having the ``most at stake in the region.″

German banks also are seen as a vulnerable group, and some British, Dutch and Swiss banks are on the rating agency’s list.

Deutsche Bank, Germany’s biggest bank, already has given advance notice. It said late last month that operating profit likely dropped by one-third in 1997, mainly due to the financial crisis and set aside an additional $780 million to cover problem loans.

Deutsche Telekom, the German telecommunications company, also reported lower-than-expected profits in 1997, partly because of risk provisions for its Southeast Asian operations. German camera-maker Leica Camera AG said Asian sales of its photo equipment plunged 47 percent in the fourth quarter.

Dutch brewer Heineken NV expects weaker sales, particularly in Indonesia.

Smaller companies, too, are complaining.

Denmark’s InWear, maker of trendy clothing, said it was pulling out of Thailand and Indonesia because of poor sales.

``We cannot tell if the crisis will take two, three or five years. Therefore, we don’t want to invest out there,″ said InWear managing director Niels Martinsen.

In Canada, Seagram, the conglomerate, said revenues from alcohol sales in Asia plunged 50 percent in last year’s fourth quarter because of lower foreign exchange rates and difficult market conditions.

MacMillan Bloedel and other forestry firms in British Columbia are facing economic problems, partly because the crisis has slashed demand for lumber. Mining giant Cominco is being hurt by lower prices for metals and other commodities.

Analysts predict shrinking exports for Latin American commodity companies, including Chilean copper producers and Mexican and Venezuelan oil concerns.

Mexican glass maker Vitro reported flat earnings, partly due to a 15 percent drop in exports as a result of the Asian woes. CINTRA, the holding company for Mexicana and Aeromexico airlines, also said its earnings were reduced in the last quarter.

Brazilian companies are feeling the crunch but for a different reason.

The government late last year introduced austerity measures to protect its economy from the ripple effects of the Asian turmoil. Auto sales plummeted after taxes soared on popular small cars.

Update hourly