ABB hammered over asbestos worries

Asbestos was commonly used as fire-proofing until the 1970s (Fisher Environmental) Asbestos was commonly used as fire-proofing until the 1970s (Fisher Environmental)

The Swiss-Swedish engineering group ABB is refusing to say whether it intends to settle a multi-billion dollar lawsuit over asbestos liabilities.

Uncertainty about the scale of asbestos claims sent ABB’s share price tumbling.

The company’s former United States subsidiary is one of 250 firms which were facing trial in West Virginia this week. Most have agreed to settle out of court.

ABB told swissinfo it would not make any comment on its strategy pending the trial, saying only that the “impact on [former subsidiary, Combustion Engineering] is not expected to be significant”.

But analysts say ABB could eventually face claims of up to $4 billion – significantly more than the provisions of $950 million that the group has set aside to meet possible asbestos suits.

Investors were equally sceptical – ABB’s share price plummeted to new lows on Tuesday, dropping below SFr5 to levels not seen since 1988, when the group was formed from the merger of Sweden’s Asea and Switzerland’s Brown Boveri.

Deadly agent

Some 8,000 plaintiffs are suing some of the world’s largest companies after being exposed to the deadly agent. More than 250 firms were listed in the West Virginia lawsuits, and they were expected to fight the case together.

But the vast majority settled in the run-up to the trial, including Honeywell International, and sources close to the trial said the 259 corporate defendants had now dwindled to fewer than a dozen. It is not clear whether ABB is among them.

Analysts say the companies’ decision to settle out of court may backfire by triggering more claims. Deutsche Bank said many of the West Virginia claims were of dubious validity and that many were likely to have been dismissed.

Massive debt

The case is one of a series of asbestos-related lawsuits pending against ABB, which is struggling under the weight of a massive debt.

ABB denies the spate of lawsuits will have a direct impact on the financial future of the company.

“Of course, at the end of the day the lawsuits are reducing our net income, because they are costing us money,” said ABB spokesman Thomas Schmidt.

“But they certainly do not put into question the future of the company,” he told swissinfo before the trial.

Threat of bankruptcy

But the fact is that more and more companies are being forced to declare bankruptcy amid a growing tide of asbestos-related lawsuits.

At least 11 US companies – all crippled by asbestos-related liabilities – have already gone bust this year.

ABB’s exposure to such litigation dates back to its 1989 acquisition of US power generation company, Combustion Engineering – a boiler maker with extensive asbestos liabilities.

Combustion Engineering was sold to a French company in 2000, but ABB still retains all liabilities that came with its former subsidiary.

Health hazard

The inhalation of dust from asbestos – a fire-retardant mineral commonly used as insulation in the construction industry until the 1970s – can lead to diseases such as lung cancer as well as mesothelioma, a rare form of cancer which lines the chest and lungs.

Complicating the litigation process is the long incubation period of up to 40 years for people who fall sick after coming into contact with asbestos.

This has set off alarm bells at several multinational corporations that have acquired companies which used asbestos in the past.

ABB – which is currently facing more than 100,000 claims – has appointed a team of legal and medical experts to assess the financial impact of claims on the company’s balance sheet.

“We are monitoring the situation very closely,” said Schmidt, “and putting aside reserves which we think are necessary to cover our future liabilities.”

But some analysts have expressed doubt that the fund will be sufficient to meet the final claims bill.

“They need more provisions,” commented Mark Diethelm, an analyst at Zurich Cantonal Bank.

“Our own estimates suggest they need to put aside roughly $1 billion, while market estimates range from $1 billion to $4 billion,” he told swissinfo.

Financial burden

Schmidt rejects claims that ABB is not financially prepared to deal with the burden of ongoing litigation.

“To the best of our knowledge the reserves are sufficient,” he said, “and we are reviewing them regularly.”

“The sum was calculated on the basis of medical and legal data… as well as on the available industry statistics.”

But Diethelm says it is impossible for ABB to accurately estimate the total amount it will have to pay out in damages.

“The asbestos issue is a black box,” he said, “because you just don’t know how much it will cost in the end.”

“The increase in claims already has a negative impact on the company’s finances, and we don’t even know if the peak has been reached,” he added.

“This is a time bomb not just for ABB but for the whole economy.”

Class action

Some analysts predict the number of asbestos-related lawsuits is not likely to peak for several years, as more and more claimants join together to launch class action suits.

Schmidt says the fact that companies like ABB are facing more lawsuits is proof that an increasing number of bogus cases are being filed by claimants seeking to cash in on the litigation process.

“What we are seeing is that more people are going for claims which are then dismissed,” said Schmidt, “and the rise in claims has more to do with the legal system than medical reasons.”

“At the moment, more than four out of ten claims [made against us] are being thrown out without any payments, because people are not really sick or because there is no identifiable link between them and the products of Combustion Engineering,” he added.

ABB says it believes only a “minority” of cases brought against Combustion Engineering are from people with serious illnesses which can be directly linked to the inhalation of asbestos dust.

swissinfo, Ramsey Zarifeh

In brief

More and more companies are being forced to declare bankruptcy as a result of asbestos-related lawsuits.

The Swiss-Swedish engineering group, ABB, has set aside $940 million to cover such claims.

Analysts say the sum is insufficient, and that ABB is likely to need between $1 billion and $4 billion in provisions.