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Wednesday, 16 January, 2002, 12:48 GMT
ABB asbestos claims 'set to soar'
ABB listing on the New York Stock Exchange, 6 April 2001
ABB shares started trading in New York on 6 April 2001
By BBC News Online's Jorn Madslien

Ballooning asbestos litigation and clean-up expenses in the US could cost Swiss-Swedish electrical engineering giant Asea Brown Boveri (ABB) $3bn (1.8bn), according to an analyst report obtained by BBC News Online.

Asbestos claims could grow tenfold over the next decade to 660,000, said BNP Paribas industry analyst Thomas Ringkvist in his report.

"The final cost to ABB of pending and future asbestos claims could be substantial compared to the $595m sum currently provisioned in its balance sheet," Mr Ringkvist predicts.

ABB spokesman Thomas Schmidt acknowledged that "the number of claims have been rising, especially since the late 1990s".

But in an interview with BBC News Online, he insisted that to the best of ABB's knowledge the $595m it had set aside to cover litigation costs were deemed sufficient at the time when the sum was set aside.

The asbestos claims are due to the acquisition in 1989 of the US power generation company, Combustion Engineering.

At the time, the claims were rather small, Mr Schmidt said.

Share valuation

In addition to the asbestos related risks, the BNP Paribas report claimed ABB's "earnings sensitivity to the economic downturn, a stretched balance sheet and recent top management departures" are weighing heavy on the company.

Percy Barnevik, former chief executive of ABB
Mr Barnevik takes another step down
Consequently, Mr Ringkvist expects ABB's shares, which were listed on the New York Stock Exchange in April last year, to almost halve in value to reflect the anticipated costs.

"We derive a target price for ABB of 10 Swiss franc (4.17; $6.02). This implies a downside of 39% on the current share price level," the report said.

By lunchtime ABB shares had fallen 2.3% in Zurich.

Legal risks

Mr Schmidt acknowledged that "with the legal environment in the US, it is complex (situation)".

But he dismissed the BNP Paribas report as just "one of a very wide range of analyst opinions of our asbestos exposure ... It is really an opinion."

UBS Warburg analyst Michael Hagmann - who recently upgraded ABB to hold because of sector-wide improvements - was also sceptical.

Mr Hagmann questioned whether an outside analyst could know more about the risks than the army of professionals hired by ABB to look into the problem.

"We have to give a little bit of credit to the fact that they have hired very expensive accountants and lawyers" to quantify the risk, he said in a BBC News Online interview.

"From the outside, you cannot judge the risk," he said.

Previously, analysts from Schroder Salomon Smith Barney, Societe Generale, Credit Suisse First Boston and Zuericher Kantonalbank have all said further provisions for asbestos claims may be needed.

Beyond the approval by the accountants and lawyers, the US stock market watchdog, the Securities and Exchanges Commission, has also "approved our last version" of provisions which was published in the 2000 annual report last February, Mr Schmidt said.

An update will be published next month when ABB releases its 2001 figures.

Barnevik resignation

Mr Ringkvist's report coincided with the resignation of the former ABB chief executive Percy Barnevik from his post as chairman of the Swedish speciality toolmaker Sandvik.

Mr Barnevik, long hailed as one of Europe's most respected executives, left ABB in November to take "responsibility for the less good performance of ABB in recent years", he said at the time.

Mr Barnevik is the chairman of Investor, the powerful Wallenberg family's holding company.

The two high profile resignations are seen by some analysts as indications that his position within the Wallenberg sphere could be under threat.

Randall Bono, US lawyer
"In some cases, it [asbestos] is being used in new buildings"
Richard Burt, lawyer, Combustion Engineering
"Even over a very long period of time, that seems extremely high"
See also:

11 Dec 01 | Business
21 Mar 00 | A-B
23 Nov 01 | Business
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14 May 01 | Business
25 Jul 01 | Business
24 Jul 01 | Business
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