Comment: Italian lesson in the risks of foreign investment

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Dropping investment clangers in Europe seems to have become all the rage among supposedly hard-nosed City professionals. Hard on the heels of Morgan Grenfell's magical mystery tour of the Norwegian fjords comes the astonishing news that London-based investment funds may hold as much as 40 per cent of Olivetti, the troubled Italian computer giant. Until the auditors pronounce, we won't know quite how bad things are at Carlo De Benedetti's flagship company, but judging by the storm clouds gathering over its Milan headquarters, they could hardly be worse.

Having survived the tangentopoli (the Italian bribes-for-contracts scandal) largely untouched, Mr De Benedetti now stands accused of one of the oldest business scams of all - cooking the books. Ten of Olivetti's largest London- based investors, including Barings Asset Management, last week wrote to the company complaining of a lack of information, direction or strategy. The result was Mr De Benedetti's resignation. For a brief moment the shares looked like celebrating but then the chief operating officer quit too, complaining that the pounds 180m half-year loss was a sham.

At this point the saga took on aspects of high farce. "The man's mentally unbalanced," claimed other members of Olivetti's board. "Do I look like someone who's suffering from stress?" Renzo Francesconi said after a meeting with regulators yesterday before disappearing on his scooter into the busy Rome traffic. Stressed or not, Mr Francesconi has made the allegation and the markets seem prepared to believe him. There can be no question of another bail-out after the recent pounds 1bn rights issue - not by investors at any rate. There are still good bits left in Olivetti, notwithstanding its bombed-out personal computer business, but if things are as bad as Mr Francesconi paints them, shareholders are never going to see this value realised.

The recriminations will be long and bitter. A rash of litigation seems certain. The London sponsors to the rights issue, Lehman Brothers, certainly have questions to answer. As for Olivetti's hapless London investors, they plainly fall into a quite different category from that of Morgan Grenfell's Peter Young. They just made a bad investment. But the lesson is much the same. Investing in poorly regulated overseas markets about which Brits know little and because of low standards of disclosure are able to find out even less is hazardous.

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