The Miami Herald
September 14, 1998
U.S. firms brace for Brazilian fallout

             ATLANTA -- U.S. multinational companies are beginning to fear the negative
             impacts of Brazil's currency crisis, and may even find the crisis more costly than
             debacles in Russia and other emerging markets.

             And banks, especially -- already reeling from Russian woes -- are at great risk if
             Brazil and other Latin American economies start to falter, say analysts.

             Just last week Chase Manhattan Corp., the biggest lender in Latin America, said it
             has taken steps to reduce its exposure in the region. The biggest U.S. bank said it
             lopped $2.6 billion in Latin American loans off its books in the first half of the year,
             reducing total exposure there by 15 percent.

             U.S. business worries focus on recession and devaluation in Brazil. The nation has
             boosted its benchmark interest rate 20 percentage points, to 49.75 percent, to
             stem an outflow of capital that could force Latin America's biggest economy to
             devalue its currency.

             While higher interest rates may bolster Brazil's real, the huge increase could stem
             consumer spending and cause a recession in the world's ninth-largest economy
             next year.

             And that would cut into dollar revenue from sales in Brazil and likely reduce results
             for Coca-Cola Co., Ford Motor Co., Whirlpool Corp. and other U.S. companies
             that do significant business there. U.S. economic growth in 1999 may drop to 3
             percent from an estimated 3.2 percent in part because of Brazil, said First Union
             Corp. Economist Dave Orr.

             ``Brazil is far more important than Russia for U.S. companies,'' said Paul Stocking,
             senior Latin American analyst for American Express Financial Advisors, which
             manages $177 billion in assets. ``If 49 percent interest rates have to be sustained,
             we are talking about a contraction for a couple of quarters at least.''

             Brazil is the 15th-largest U.S. trading partner, representing about 1.7 percent of
             trade. Russia, which defaulted on debt and cut the value of its currency, is 31st
             with about 1 percent.

             ``It could have a fairly severe negative impact'' on some multinational companies,
             including big banks with loans to Brazil, said First Union's Orr. ``The impact on the
             U.S. economy overall will be gradual and moderate.''

             Jacques Nasser, head of Ford's worldwide automotive operations who will
             become chief executive in January, said, ``It's going to be tough'' for the
             automaker to meet its net profit margin target of 5 percent next year because of
             slowdowns in emerging markets, including Brazil. Ford has 14.5 percent of Brazil's
             car and truck market.

             Ford, based in the Detroit suburb of Dearborn, Michigan, earned just $14 million
             in the second quarter in South America, down 44 percent from $25 million in the
             year-ago period there. It has said it expects to have a tough time breaking even in
             South America in 1998.

             Brazil is one of the largest markets for Atlanta-based Coca-Cola, the world's
             biggest soft drink company. The country provided 3.9 percent of Coca-Cola's
             profit in 1997, according to Sanford C. Bernstein analyst William Pecoriello. Only
             the U.S., Germany, Japan, Mexico and Spain provided more.

             Pecoriello estimates Brazil's economic woes will hurt Coca-Cola's profits by more
             than 1 percentage point in 1998. Coca-Cola declined to comment.

             Benton Harbor, Michigan-based Whirlpool, the largest appliance maker, said in
             July that the industry's sales in Brazil are expected to tumble about 20 percent this
             year. The company didn't release details on sales or earnings in Brazil, which was
             expected to account for 10 percent of Whirlpool's revenue this year. A company
             spokesman declined to comment today.

             Meanwhile, big banks' anxiety about exposure in Latin America has lurked in the
             background during the recent tumble in banking shares, and now those worries
             have come to the fore, says the Wall Street Journal.

             At the end of March, U.S. banks' total outstanding cross-border exposure in Latin
             America stood at $76.4 billion, second only to their exposure to the largest
             western nations and Japan, and more than 10 times their $6.8 billion exposure to
             Russia, according to the latest figures available from the Federal Reserve.

             Much of banks' exposure in Latin America is in the form of commercial loans and
             other types of credit. It doesn't include indirect exposure through lending to hedge
             funds and other institutions that invest in Latin America.

             ``Russia was really very minor in its impact on U.S. banks, and a similar crisis in
             each of these Latin American countries would be much greater (in impact). There's
             no getting around that,'' said Tanya Azarchs, analyst with Standard & Poor's
             Ratings Services.

             The Wall Street Journal said most of the concern focuses on Brazil, where the
             stock market has fallen sharply in the past six weeks and local interest rates have
             jumped as part of an effort to defend the currency. U.S. banks' exposure there
             totals $27.2 billion, according to the Federal Reserve.

             The sheer size of the banks' exposure also means that even a small slowdown in
             business could have a significant impact on earnings.

             Citicorp had the largest Latin American exposure, of $15.5 billion, at the end of
             June, including $4.4 billion in exposure to Brazil and $3.4 billion in Mexico. Of the
             total, $5.9 billion was in trading and short-term claims.

             J.P. Morgan & Co.'s exposure in Brazil at the end of June totaled $4 billion. The
             company didn't disclose its exposure to other countries.

             BankBoston's Latin American exposure stood at $5.4 billion at June 30, while
             NationsBank Corp.'s had exposure of $2.8 billion. American Express Co.'s
             exposure, through its banking unit, was about $1.1 billion.

             Bankers Trust Corp., which suffered the most of any U.S. bank in Russia, had
             about $2.4 billion of exposure in Brazil, Mexico, Argentina and Venezuela at the
             end of August, after sharply reducing its exposure in these markets in the past two
             months, a spokesman said.