Argentina stings Telefonica, CL

February 28, 2002 Posted: 1023 GMT

LONDON (CNN) -- Telefonica, Spain's dominant phone company, said on Thursday Argentina's economic crisis tore a hole in its 2001 profit.

Net profit fell 16 percent to 2.1 billion ($1.8 billion) after Argentina's decision to devalue its currency to re-float the economy in early 2002 reduced profits by Telefonica 369 million.

The company also offset losses of 1.42 billion against its reserves and warned it could face further costs to first quarter results because of the Argentine crisis. Telefonica has spent more than $25 billion on expanding its business in Latin America.

Argentina was forced to devalue the peso after defaulting on debts of $121 billion. Spanish banks, Santander Central Hispano and Banco Bilbao Vizcaya Argentaria, have written off losses in Argentina.

Other companies have not been immune from the Argentina fallout. Credit Lyonnais, France's fourth-biggest bank, said it had set aside money to cover its potential loss in Argentina and Enron, the failed U.S. energy trader.

Lyonnais said on Thursday it made a 2001 pretax profit of 1.28 billion, down 22 percent, after increasing bad debt provisions by 91.3 percent to 678 million.

Almost half the bad loans, or 321 million, were set aside in the fourth quarter, including 247 million for possible bad loans in the United States.

Losses related to Enron -- which has taken a toll on many global financial institutions -- were put at 140 million.

"A substantial proportion of the provisions freed up have been used to strengthen the bank's cover against risk in Argentina," said Lyonnais.

Lyonnais stock edged up 0.3 percent to 37.43 in early Paris trading on Thursday, while Telefonica's shares, which have risen more than 10 percent this year, slipped 1 percent to 13.13 in Mardrid.