REFILE-INSIGHT-In euro zone crisis, companies plan for the unthinkable=2

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changed and that it continued to use a number of international commercial banks as well as the ECB's deposit facility. Daimler said it used surplus cash mainly internally. Volkswagen did not immediately respond to calls seeking comment.

Similar caution emanated from companies in other industry sectors.

Simon Henry, chief financial officer of oil company Royal Dutch Shell, said as a consequence of Europe's debt crisis it was taking extra care in investing its $20 billion cash pile. "It's with secure counterparties and its short term," Henry said.

Drugs firm AstraZeneca told Reuters it was carefully monitoring its exposure to the banking sector in light of the debt crisis and had increased its holdings of U.S. government Treasury bills.

The chairman of another company in Britain's FTSE 100 index of leading firms said the shortage of AAA rated banks was complicating life. British firms don't have access to the ECB because Britain is outside the euro zone.

Different industries also have differing abilities to reduce exposure to risky markets.

Pharmaceuticals is one sector where firms have limited wiggle room, since companies have an ethical obligation to supply life-saving medicines, even when payments are uncertain. In fact, drug makers have already been through something of a "dry run" in Greece, after being forced to accept government bonds instead of cash for some outstanding debts. Those bonds were either sold immediately at a discount to face value or are still sitting on their books at even lower value today. Greece accounts for only around 1 percent of the global pharmaceuticals market, so the impact on major international companies has been minimal. Italy and Spain, however, are much bigger markets.

COMPANY FILINGS

A significant number of U.S. companies in a wide range of industries, including one in three members of the widely watched Dow Jones industrial average, warned investors of their rising concerns about Europe in quarterly regulatory filings.

"Western Europe appears to be experiencing increasing challenges given the uncertainty around fiscal and monetary policy direction, which likely impacts consumer confidence," diversified manufacturer 3M Co said in a filing with the U.S. Securities and Exchange Commission.

Bank of America Corp added the European debt crisis into its regular list of risk factors it advises investors to be aware of: "There remains considerable uncertainty as to future developments in the European debt crisis and the impact on financial markets."

And drugmaker Merck warned shareholders that cutbacks in spending by cash-strapped European governments could take a toll on how much it can charge for its medicines.

Other companies that called attention to the crisis in their filings included American Express Co, Boeing Co and Cisco Systems Inc.

U.S. companies that do business in Europe are expecting exchange rates on European currencies to be more volatile in the coming months, and have stepped up their efforts to hedge against these risks, experts said. Beyond financial hedges, though, which become pricier at times of vulnerability, manufacturers should think about "natural hedging" -- localising supply chains within the euro region, suggested Stefano Aversa, co-president of Alix Partners LP, a global consulting company.

"One of the things that companies have to think about is natural hedging, which is the only real protection, having production as much as possible balanced with where you sell and where you buy. This is the No. 1, because you might see swings literally of two or three points on the bottom line due to this here," Aversa said in a phone interview.

Other companies are rewriting sales contracts to allow them to adjust prices if currencies experience large swings, Aversa said.

U.S. companies may be more prepared for a European meltdown simply because the credit crunch of late 2008 was felt more sharply in the United States, Aversa said. The downside to the resulting conservatism, though, is that companies are already having a harder time getting access to credit as banks tighten lending standards.

"All of the banks are doing the stress tests and frankly are becoming much more prudent," Aversa said. "One of the consequences of it for the industrial companies, particularly the not-big ones, is a restriction on refinancing and credit in general, which is now pretty apparent."

WORK FOR INSURERS, LAWYERS

The prospect of a euro break-up raises a mountain of legal and financial questions. Lawyers and bankers have begun combing through loan agreements, leases and other financial contracts to see how they would survive any serious euro disruption.

Most contracts failed to foresee a collapse or partial disintegration of the euro and the stroke of a lawyer's pen a decade ago could have heavy repercussions today, stemming from the choice of jurisdiction or the laws governing individual contracts. Some banks have already started thinking about how to revise the standard documentation used in future loan agreements to anticipate a break-up of the single currency.

"From the late 1990s onwards, commercial contracts were written to include express provisions to deal with the transition to the euro but I am not aware of any being written so far that contemplate any country exiting the euro," said Jamie Wiseman-Clarke, a senior associate at London law firm Berwin Leighton Paisner, specialising in aviation, rail and shipping. "The euro was assumed to be stable," he added.

It is a high-risk process.

Ill-judged wording might result in a creditor having to recover its money in the currency prevailing on the day in a country departing the euro area rather than the euro. There are also concerns that a euro exit would tip some companies into default on their loans. The redenomination of their local currency could trigger a drop in revenues that would in turn prevent them meeting their obligations on euro-denominated debt or force them to break loan covenants.

A rash of technical payment defaults on all the loan borrowers from a departing country is a Doomsday scenario that would keep the lawyers busy as they fix documentation that failed to envisage such an outcome, bankers said.

More likely than a mass technical default is that some companies would simply be unable to pay or meet loan conditions because of the dire economic conditions and drop in demand that some economists are predicting from a break-up of the euro.

Worse still, UK law firm Clifford Chance has warned there might be practical difficulties in recovering payments since any decision to quit the euro would probably go hand in hand with exchange controls. Depending on how courts read the background to the decision that could lead to a stand-off between the laws of different states.

Planning is not made any easier by the fact that many continental European companies tend to be more politicised than their counterparts in the United States, so the question of a break-up is virtually taboo. Franco-German-led aerospace giant EADS, for example, is often described as the industrial counterpart to the euro. Its stakeholders include the French government and, soon, the German state. During much of its 11-year history it was a conduit for Franco-German tensions.

"If people learned that a big CAC40 (French blue-chip) company was preparing a worst-case scenario it would spread anxiety and would be interpreted as a very damaging blow to the euro," said a communications adviser to a number of top French companies, asking not to be identified.

As for a complete collapse of the currency, the consequences are so unpredictable - and unthinkable to a post-war generation immersed in European integration -- that many say there is little point in running models. What counts more, they say, is a nose for survival.

"We are not running contingency plans like that. We want

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