boilingspot: European CEOs Move Cash to Germany In Case of Euro Breakup

Grupo Gowex (GOW), a Spanish provider of Wi-Fi wireless services, is moving funds to Germany because it expects Spain to exit the euro. German machinery maker GEA Group AG is setting maximum amounts held at any one bank

By Manuel Baigorri and Richard Weiss | Bloomberg | Dec 9, 2011

Grupo Gowex, a Spanish provider of wireless services, is moving funds to Germany because it expects Spain to exit the euro. German machinery maker GEA Group AG is setting maximum amounts held at any one bank. Photographer: Alex Kraus/Bloomberg

“I don’t trust Spain will remain in the euro zone,” said Jenaro Garcia, founder and chief executive officer of Madrid- based Grupo Gowex, which provides Wi-Fi access in 15 countries. “We moved our cash and deposits to Germany because Spain will come back to the peseta.”

European companies spent billions preparing for the euro when it was introduced in 2000 by 11 countries. Contingency planning for an unraveling of the currency involves cutting investment, moving money to Germany, transferring headquarters to northern Europe from southern, and even going out of business, according to interviews with more than 20 executives.

The Bundesbank, Germany’s central bank, registered capital inflows of 11.3 billion euros ($15 billion) from non-banks in September, according to the breakdown of its current account published Nov. 9. That helped transform a deficit of 47.3 billion euros in Germany’s balance of other capital flows in August to a surplus of 700 million euros in September.

In another bid to end the debt crisis, European leaders added 200 billion euros to their warchest and tightened anti- deficit rules in what they called a “fiscal compact” at a meeting in Brussels. European stocks dropped and the euro was little changed as the plan disappointed some investors.

From Greece to Italy

“How do you control an explosion in a controlled way?” Fiat SpA (F) Chief Executive OfficerSergio Marchionne told reporters in Brussels on Dec. 2. “That’s a contradiction in terms. This will be an implosion of some size with potentially disastrous consequences.”

Companies switched gears from preparing for a possible exit by Greece to some sort of currency breakdown after Italian Prime Minister Silvio Berlusconi’s government collapsed and 10-year Italian bond yields rose past 7 percent in November.

“A couple of weeks ago I would never have thought about having conversations on the probability of the euro disappearing, but now there is more speculation on such a scenario,”Wolters Kluwer NV (WKL) CEO Nancy McKinstry said in a Nov. 29 interview at the company’s headquarters outside Amsterdam.

The board of Wolters Kluwer, Europe’s largest tax and legal publisher with offices in Frankfurt, Milan, London and Phoenix, has spent more time on scenario planning, she said.

Tapping Reserves

“We obviously have plans in place if something happens,” ABB Ltd. (ABBN) CEO Joe Hogansaid in Zurich on Dec. 1. “They can never be as robust as you’d want them to be but we certainly are prepared if there is a crisis.”

The Swiss engineering company “updated what we would do” in the past few weeks, Hogan said. “We just keep updating and making our plan more and more detailed.’

Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, has honed its plans developed following the 2009 financial crisis and is prepared to act if markets dive, Chief Financial Officer Friedrich Eichiner said in November.

The Munich-based carmaker’s response would include reducing production by as much as 30 percent and using its banking unit to directly tap central bank reserves. The company also has reduced its leasing portfolio to manage risks in case used car values decline.

Companies outside the euro region are doing just as much preparation as those inside. U.K. Chancellor of the Exchequer George Osborne said yesterday he’s seen studies suggesting a collapse of the euro would lead to a “very significant” drop in U.K. economic output.

Spreading the Risk

Kingfisher Plc (KGF), Europe’s largest home-improvement retailer, has considered plans for the possibility of a collapse of the euro region and will focus on cash generation to account for that possibility, Chief Executive Officer Ian Cheshire said.

The London-based company would start with a focus on working capital and making sure planned capital-spending projects reflect the level of uncertainty, Cheshire said in an interview on Dec. 1. It would probably also stop chasing unprofitable sales or market share with promotions, and focus on cash margins instead.

Top of the list of concerns among companies is the collapse of one or more financial institutions in Europe. Executives say they’re already moving money around to avert that risk.

‘Survival Mode’

“We are more careful about investment decisions,” said Juerg Oleas, CEO of GEA, a machinery maker based in Dusseldorf. “We have internally defined maximum amounts that we place with a single bank.”

K+S AG, Europe’s biggest potash supplier, said the company is assessing the counter-party risk of the banks it works with and, should they reach predetermined thresholds, stop the flow of any new funds into that institution.

“We spread our risk by defining maximum amounts that we allocate to individual bank or issuers of commercial paper and spread our funds broadly among many different parties,” said K+S spokesman Michael Wudonig.

Juan Jose Nieto, chairman of Service Point Solutions SA (SPS), a Barcelona-based document-management company, said he would move the company’s headquarters to the U.K. or Scandinavia in the event of a euro breakup.

“We’ve had to reinvent our business in the last few years because of the crisis,” he said in an interview. “We’re in survival mode. What’s happening in Greece and Italy not only affects banks but also companies like us.”