Opinion

Felix Salmon

Walmexgate’s fallout

By Ben Walsh
April 23, 2012

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In the first day of trading since the New York Times published David Barstow’s devastating investigation into systematic corruption at Wal-Mart in Mexico, Wal-Mart de Mexico fell 12.5% and Wal-Mart dropped 4.7%. In total, approximately $12 billion in market cap was lost.

Wal-Mart’s own response seems to do little to mitigate the damage.

Felix raises the possibility of an investigation by Mexican authorities into WalMex’s banking business. The WSJ’s Vipal Monga writes that the cost of the internal investigation alone could weigh on the company, pointing to the $93.3 million Avon spent last year investigating FCPA violations:

If Avon is any guide, Wal-Mart’s internal investigation into allegations of a massive bribery scheme in Mexico could end up costing the company a significant amount of money.

Business Insider’s Eric Platt breaks down the fines Wal-Mart could face:

Over the period the Times investigates, Walmart opened a net 239 new locations in Mexico. If each of those locations should have not opened as quickly, then multiplying each new location by that average store revenue rate means Walmart generated an extra $6.558 billion over the 2002-05 period…

But under the Alternative Fines Act, a fine under the FCPA can be twice as large as the benefit seen to the guilty party. If doubled, Walmart could be on the line for $13.1 billion, a hit to EPS of $2.24.

Beyond civil penalties, Roland Jones at MSNBC has the following eye-popping quotes:

“We could easily see criminal prosecutions,” said Jacob Frenkel, a former official of the Securities and Exchange Commission.

“The fact that it’s a U.S. company working through a Mexican subsidiary does not give the U.S. company protection,” Frenkel told CNBC, adding that anyone who is found to have their fingerprints on the alleged wrongdoings “has potential liability, civilly and criminally.”

A 2009 interview with the New York Times is coming back to haunt Eduardo Castro-Wright, the Wal-Mart executive who is said to have personally authorized bribes. He told the paper that “there’s no leader who can be called one if they don’t have personal integrity” and that “cultural differences,  which are so often touted as the rationale for making decisions in business, are grossly overrated, and that human behavior really doesn’t have a language. It’s pretty much the same everywhere.”

US Representatives Elijah Cummings and Henry Waxman have also sent a letter to Wal-Mart CEO Mike Duke requesting a meeting as they begin an investigation of their own. Whether Duke still has his job when they do meet remains to be seen. - Ben Walsh

On to today’s links.

Deals
Nestle to pay $11.9 billion for Pfizer’s infant nutrition business – Dealbook

EU Mess
Spain’s economy shrinks 0.4% in the first quarter of the year – WSJ
Greek austerity has cut the country’s budget deficit, but fiscal progress cannot erase deep unrest – Reuters
Emerging economies can save the Euro, but developed countries don’t want to disrupt the status quo – Bloomberg Ticker
ECB pushes back on Geithner and IMF requests for action - Bloomberg
Hollande and Sarkozy move to runoff in French election after strong performance from far right - NYT

Mas Kapital
After criticism from government, Chinese banks may find raising capital difficult – NYT

Health care
Ronald Dworkin: the real argument why the mandate is constitutional – NYRB

Takedowns
Enough with the “Steve Jobs wouldn’t have done this” nonsense from pundits – Forbes

Big Numbers
Derivatives exposure by bank visualized with skyscraping stacks of $100 bills – Demoncracy

Billionaire Whimsy
Estimating the value of the gold in Scrooge McDuck’s vault – The Billfold

Banks
Too many bankers, not enough deals: cost-cutting focus shifts to M&A and financing – WSJ

Wonks
Tyler Cowen explains why Japanese investors keep buying their own country’s debt - Marginal Revolution

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