Chile Forum

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OK, it's time.

Price-Waterhouse is now under suspicion of improper accounting (read : "accomplice") in the La Polar meltdown. La Polar today taken out of trading on the CL stock market, indefinitely. This whole thing sounds like a page from the lending crisis in the US, circa 2008. Stay tuned - it's going to get uglier....

WSJ: today, in polite terms:

SANTIAGO (Dow Jones)--Chile's SVS securities regulator indefinitely suspended trading in financially troubled retailer Empresas La Polar SA (LAPOLAR.SN) pending an investigation, the SVS said Monday.

La Polar last week announced it would have to provision an additional $430 million due to irregularities in its store-credit deparment.

Trading was halted until further notice "to ensure that investors, shareholders and the market in general has the necessary information in light of the data the company provided," the SVS said in a statement.

SVS officials Monday visited La Polar's offices as part of its investigation into the retailer's accounting practices.

After the company disclosed its financial woes, La Polar shares plummeted 42% Thursday. On Friday, they rebounded 19% amid speculation the company would make an interesting takeover target.

On Monday before trading was halted, La Polar tumbled 11% to 1,430.00 pesos ($3.06).

In a separate statement, the Finance Ministry announced Finance Minister Felipe Larrain convened a meeting of the Capital Markets Committee to discuss La Polar's woes.

The committe, which includes the securities, banking and pension fund regulators as well as representatives of the governemnt and the central bank, met Friday to discuss the situation and its implications on capital markets and regulation.

Ouch.

Will be interesting to see whether Polar has been the only one. It seems to me that all the retailers (and probably banks & car dealers as well) have been aggressive in the loan-approving dept.

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One of the ironies of this, of course, is that the Chilean banks won't provide accounts for the most credit-worthy of new immigrants, who can indeed provide proof of their resources and credit histories, and then you have the credit arm of El Polar offering millions in far more risky credit to those who are apparently undeserving of such largess, as well as unwilling or unable to pay back on that credit. Will El Polar turn out to be another "too big to fail" in the same foolish practices adopted in the US? Stay tuned. Managers for the AFPs are already screaming bloody murder, and this could be more bad news for those privatised retirement funds.

There are more than a few stores in this country that strike me as little more than credit card scams playing on the low income people. In all the years I have been here, I can never recall finding anything La Polar that was attractive, but I could sure see how if all you have is a credit line with them and school season coming up that is where you might shop for the family.

Their game was not writing off bad debts, but instead renegotiating unilaterally their debts with customers. They just kept piling and piling the debt on people that could never pay, and then booking it as good debt. U.S. credit card companies use to do the same thing to college students and low income. same scam, different country. Just they happened to be a public company. Chances are no one would have gone after them, had they not lied to their shareholders.

So, there are essentially two related scandals going on here. One was the shareholders, one were the customers.

The guys to watch are any store where they are charging higher prices than the competitors but somehow seem to still be doing good, essentially selling the undifferentiated products on the low end.

In the grand scheme of things La Polar is a big headline for the lazy chilean media, but hardly sufficiently big to collapse the Chilean economy or even qualify as a speed bumb. Not sure what their market cap is or was, looks like 500 million to 1 billion U.S. (likely reading that wrong). Not exactly big gun, and at the same time still bigger than the tax revenue of Greece.

Management got caught with their pants down.

Bigger scandal is likely that Price-Waterhouse was in the middle of that mess, and either played along or did not catch it (both are equally bad at the end of the day).

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Supposedly there was also something unlawful going on. Besides just being bad American-style credit practices.

From what I understand, La Polar was supposed to impose penalties on overdue accounts for customers they should have known were unlikely to pay. Instead it seems that La Polar elected to renegotiate payment, which seems reasonable enough, but it seems that they way they elected to do that was technically illegal. And the practice, evidently well known to their accounting firm Price Waterhouse, goes back to 2007 or so. Or at least that is some of what is coming out in the CL news now.

According to the press, average credit card debt at La Polar: ~1.5M pesos vs. 400K at Ripley et. al. Does La Polar have a unique customer base that can bear so much more credit? I don't think so.

La Polar's market cap was not big enough to be of real significance in the big picture (e.g. AFPs). This could be a good warning shot across the bow of the other players in the retail and banking sector.

All these second or third tier stores (like abcdin, hites, fashion's park, corona) are not about interesting goods or good prices, since you can generally get a better deal at the big three (París, Falabella or Ripley... even Johnson´s at times), it´s all about the financing options given to low income compatriots.

I used to have a nana many years ago that flaunted the fact she had about 10 credit cards, most from these stores and some from other smaller shops. Interesting how none of them were bank cards (visa, mastercard, which are still out of reach for some, but today a third year U student with no income can get them with a checking account... will get into that on some other post, but let´s just state I´m a thrifty person, hehe).

Normally these kind of loan sharks, low end credit companies do this sort of stuff, like making you sign for insurances without getting a decent explanation about them, extremely high interests, hidden fees, etc.
Presto Lider is the perfect example of this, it has done all those practices and more. I had a friend who consistently got their Presto card offered, to the point of telling him ´We ARE gonna send you the card and it´s enabled already for purchases´- without prior authorization. The card included pre-authorized insurances without his signature allowing them, and it was a nightmare to close it.

One to watch currently is Movistar, but also all the phone companies seem to be doing it. They are calling you to sell you services, that often have nothing to do with your phone. The first thing they ask is "senor Charles Spencer", which my normal response would be to reply "si" or similar. Don't do it. Ask what they want, what this is about, or whatever, but do not use the word "si" on the phone. They called me a couple of times last week, and when they could not get "si" out of me (lived in Vegas for years, I am wise to that scam) they hung up almost immediately. Happened three times through out the day, with different operators.

The worse thing is that they are running these scams with the biggest companies, trying to sell extra services. I am not sure all of them are just scamming outright, or the operators are payed by the number of "yes" recordings they get on the phone. Be very careful if your Spanish is limited, because they can easily catch you with what would be tricky phrases for native speakers to catch.

The sad thing is, that Chileans as a culture, feel it is rude to just hangup. I have seen well traveled, well educated Chileans, sit on the phone with scam operators and talk for an hour.

The funnest one though was I got a call in French, from an automated phone system for Santander. They call in French and tell you to please stay on the line ( my French sucks, but I understand a bit ). When about the 4th time, I called back to the phone number and got a live person. I explained to them they left their automated dialer on the wrong language. They wanted to sell me cancer insurance (I get paid if I get cancer of any sort, kind of odd).

Movistar is the worst. THE WORST.
This is some random case I had in my bookmarks: http://www.rincondevito.com/406/movista ... r-grabada/
Many think Claro is bad, but Movistar goes further in customer dis-service, outsourcing, bad business practices, etc. And they aren´t even cheap.
Entel is the most decent one in terms of support, I´ve had the three companies and in my inner geekiness I like to test service quality and prices, both technical and customer exp.

About the unwanted offers by phone, in my family we realized it was a better deal to just ditch the landline. No more headaches so far.

Oh and I used to be very polite with the offers, but when they turned out to become more and more robotic (like the ones from shady long distance carriers), I did it this way:
- Aló, hablo con el responsable de la línea?
- Con él (instead of saying sí, which could be taken as agreeing to the offer)
- Mire, estamos llamando de blablablablabla...
- No. (then hang up right away)