Ah Socialism, always such a failure ;)

http://online.wsj.com/article/SB10000872396390443404004577576803218191274.html


August 8, 2012, 12:32 p.m. ET



More Companies Shy Away From Spain



By MAARTEN VAN TARTWIJK JESSICA HODGSON and NICLAS ROLANDER



More corporate storm clouds gathered over Spain, as two major European
companies on Wednesday joined those that have said they are taking steps
to reduce exposure to the recession-hit country.

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Dutch financial services company ING Groep NV INGA.AE -1.27% said it has taken aggressive

steps to reduce its exposure to Spain, as it seeks to tackle a funding
imbalance that could pose a serious threat should Spain eventually exit
the euro zone.



Swedish security services group Securitas AB SECU-B.SK -8.78% said it may be forced to

terminate more contracts in Spain after making significant cuts in
unprofitable contracts in the first quarter, amid fears customers in the
country may not be able to pay their bills.



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 and making companies shy away from the region, Mr. Lane
said.



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 -2.11%

the parent company of British Airways and flagship Spanish carrier
Iberia, said it has started preparing for the possibility that Spain
could exit the single European currency.



Amid mounting concerns by investors and analysts about its large
exposure to recession-ridden Spain, ING said it brought down its
exposure to the country to "reduce the funding mismatch" there. The
total exposure of ING's banking unit was cut to €34.9 billion ($43.27
billion) by July 31 from €41.1 billion at the end of the first quarter,
mainly through selling covered bonds and residential mortgage-backed
securities. ING said the sale of these assets led to a loss of €234
million.



Through its online bank franchise ING Direct, the Dutch group has built
up a significant presence in the country and has generated considerable
deposits. But the Spanish unit also serves as an investment vehicle for
other ING Direct franchises in Europe and has used some of the funds
collected in other countries to originate loans in Spain and invest in
Spanish assets, such as covered bonds.



This created a mismatch between assets and liabilities, and ING's
business in Spain had become heavily reliant on funding from operations
elsewhere in Europe. The Spanish unit's reliance on "outside" funding
fell to €12.3 billion in July, from €19.6 billion in the first quarter,
ING said.



The Dutch lender reported a group net profit of €1.17 billion, down from
€1.51 billion in the same period a year ago. Earnings were squeezed by
higher provisions for bad loans, which rose 78% to €541 million, mainly
because of the weakening European economy.



"[Spain] is going through a massive reduction on government spending,
which is having an impact on the economy at large," Chief Executive in
that country told a news conference.



Meanwhile, Securitas Chief Executive Alf Goransson said in an interview
that the company may terminate further contracts in Spain because the
market has deteriorated faster than the security firm had expected.



By the end of the first quarter, Securitas had terminated unprofitable
contracts in Spain that had an annual value of 450 million Swedish
kronor ($66.92 million).



The company blamed conditions in Spain and problems integrating IT
systems with an acquired business in the U.S. as it reported an 8.2%
drop in second-quarter net profit to 337 million kronor, from 367
million kronor a year earlier.



At IAG, a big drag on earnings has come from Iberia, which accounts for
just over one-quarter of the group's revenue. Roughly half of Iberia's
income in turn comes from Spain.



IAG warned last week that 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.



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.



Another airline, U.K. low budget airline easyJet EZJ.LN -1.31% PLC, said
recently that it was planning to stop basing aircraft and crew in
Madrid since it 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.

—Marietta Cauchi contributed to this article.