A Dirty Job

What’s down with down under?


Source: Tar Sands World

Petrobras is one of the world’s leading oil companies, it was the heart of the B in BRIC countries. It had the potential to put Brazil into a leadership positon among market participants.

But that didn’t happen. Authorities allege that construction companies paid bribes to mid-level Petrobras executives to secure inflated contracts. The executives then kicked back some of those bribes to government officials overseeing the construction. In essence, they were all stealing from the company.

The stock has taken a dive. It was already weak, having fallen 40% from September to December. But now it’s down another 40%. In all, the stock has fallen almost 90% from its heady days in 2008—when investment flows into Brazil were so strong that the country needed to restrict them.

Source: Finviz

The stock is down due to the uncertainty. Amid the corruption scandal, the company’s entire senior management team has resigned. A scandal like this raises questions about the entire company’s controls and ethical culture. Delayed financial results were finally reported last Friday, and they missed estimates. The company is in flux.

Some are calling for the impeachment of Brazil’s President, Dilma Roussef. Brazil owns 60% of the company’s voting shares, and Roussef served as Petrobras’ chair while the scandal was taking place. There’s no indication that she’s implicated. But when a state-owned enterprise in an emerging market with loose accounting standards generates revenues greater than 6% of the entire economy, you’re looking for trouble.

Governments are supposed be referees, enforcing the rules. When you combine being a player with being a referee, the game is corrupted.


Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
Leave a comment if you have any questions—I read them all!

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