Business Blog Posts

Camera and medical equipment maker Olympus is being investigated by police, prosecutors and regulators after admitting this month to hiding investment losses for decades and using payments linked to acquisitions to aid the cover-up.

Nippon Life, which cut its holding to 5.11 percent from 8.18 percent, said it had done so due to uncertainties surrounding the company but would still back the firm.

"Our basic stance is that we will continue to support Olympus due to the company's high technological strength in its core business and because it is in the public's interest," said Akira Tsuzuki, an official at Nippon Life.

Olympus, which employs nearly 40,000 people, is the global leader in endoscopes and its optical technology may have defense applications.

Olympus may sell assets to help pay down $3.4 billion in debt under a plan aimed at keeping the support of its banks, the Nikkei business daily said. Their backing is vital because the firm is relatively highly geared and is expected to have to make some hefty writedowns after its accounts are put straight.

The once-proud company put forward the debt-reduction proposal at a meeting with creditors on Wednesday, offering to cut its debt by about 260 billion yen ($3.4 billion) over the next three years, the Nikkei said.

The paper quoted a senior banker as saying Olympus did not face any imminent cash crunch.

DUBIOUS PAYMENTS

The dubious M&A payments included a huge $687 million fee paid to obscure financial advisers for Olympus's $2.2 billion purchase of British medical equipment firm Gyrus in 2008. The fee is the world's biggest, according to Thomson Reuters data.

Share in Olympus, which has lost about 70 percent of its market value since the scandal broke last month, jumped on Thursday, surging as much as 18 percent in heavy trade.

Investors are betting that the firm will escape a delisting, although executives deemed responsible for the scandal may well face criminal charges.

Fumiyuki Nakanishi, strategist at SMBC Friend Securities, said banks were major shareholders as well as lenders to Olympus and none of them would benefit from a delisting, which would effectively cut the firm off from equity capital markets.

"The big shareholders of Olympus are the banks. They're the ones that are going to suffer if Olympus shares turn into scrap paper," said Nakanishi, noting Olympus still needed to meet a December deadline for publishing its half-year accounts.

"If Olympus does hand in its results by December 14 and there are no further uncertainties, the stock will continue its climb on a view that it will not be taken off the Nikkei 225 or be delisted."

TO DELIST, OR NOT?

The Tokyo Stock Exchange has put Olympus on a watchlist as a possible prelude to delisting.

If the firm does not meet the December 14 deadline, it would be automatically delisted. The bourse can still delist its shares depending on the scope of the misstatements. But a securities watchdog source has said it might recommend that the company be fined, a move that could decrease the risk of delisting.

"Institutions and funds are selling their holdings of Olympus, but as long as the company looks as if it might avoid delisting, hedge funds and speculator traders will keep buying it back, looking for short-term gains," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

But, he added, "the rising trend could turn around quickly" if the company began to look like it might miss the deadline.

In a sign Olympus expects its core businesses to keep ticking over, the company showed creditors a tentative operating profit forecast of 35.6 billion yen for the year to March 2012, the Nikkei said. That would be significantly lower than a previous forecast of 50 billion yen announced in August, but about flat on the figure it announced for last year.

Some experts say, though, that it may be difficult to prevent delisting, given past precedents and the Tokyo exchange's rules, which state that a firm will be delisted if it has made "false statements" in its annual or half-year reports and those falsehoods would have a material impact on the shares.

Olympus has told its creditors that its acquisition costs for Gyrus were overstated by 33.4 billion yen ($434 million) at the end of fiscal 2010, the Nikkei said, though an independent panel commissioned by Olympus was still probing the matter.

If this were the only writedown, such an amount would put a big dent in the company's equity but not destroy it.

At Wednesday's meeting, which involved about 100 bankers, two major creditors, Sumitomo Mitsui Banking Corp and Bank of Tokyo-Mitsubishi UFJ (BTMU), said they would continue to support the firm, multiple sources told Reuters.

Sumitomo Mitsui Banking Corp is the core banking unit of Sumitomo Mitsui Financial Group, and BTMU is the main unit of Mitsubishi UFJ Financial Group.

Olympus' interest-bearing debts stood at about 650 billion yen ($8.45 billion) on a consolidated basis as of end-March. SMFG and BTMU have total loans of over 400 billion yen to the firm, which also borrowed about 100 billion yen in syndicated loans, according to banking sources.

($1 = 76.950 Japanese Yen)

(Additional reporting by Mari Saito, Yoko Kubota, Lisa Twaronite and Isabel Reynolds in Tokyo; Writing by Linda Sieg; Editing by Mark Bendeich)

BHP and rivals such as Rio Tinto (RIO.AX) (RIO.L) and Anglo American (AAL.L), have warned that markets are likely to remain volatile in the near term, but BHP is the first to highlight that customers are starting to face tougher credit conditions.

"The heightened volatility and uncertain economic outlook are expected to continue to weigh on sentiment in the markets for our commodities," Chief Executive Marius Kloppers told shareholders at the group's annual meeting in Australia.

Kloppers' outlook was also more cautious than at the group's annual meeting in London a month ago, where he said prices had softened in the face of global uncertainty.

However investors were unperturbed, pushing BHP's shares slightly higher in a flat broader market, as the challenging outlook is already baked into its share price.

"It's there for everyone to see, the world's a much more uncertain place at this juncture than what it has been over the last couple of years," said Tim Schroeders, a portfolio manager at Pengana Capital.

"It's prudent for BHP to bring that to everyone's attention and highlight that the world has changed and that it is a difficult operating environment."

BHP's Australian shares have fallen around 25 percent since hitting their high for the year in April as the outlook for the global economy has darkened, broadly mirroring the performance of Rio over the same period but underperforming a decline of around 15 percent in the wider market .AXJO.

Chief executive Kloppers reiterated that customers had turned cautious in managing their stocks.

"We are also aware that for some of the people we do business with, there has been tightening in both the availability of trade finance and the terms on which it can be accessed," he said.

STILL SELLING EVERYTHING

He said that despite those challenges, the company was still able to sell everything it was producing and its customers were continuing to buy all their contracted volumes.

"There's nothing that we've seen with regard to the large consumer nations and China and Asia in general that gives us cause for concern," said James Bruce, portfolio manager at Perpetual Investments, which owns BHP shares.

After delivering a record $21.7 billion profit in the last financial year, the Australian Shareholders Association pressed BHP to hand back more cash to shareholders, following a $10 billion share buyback completed earlier this year, rather than chasing more acquisitions.

Chairman Jacques Nasser stuck to the company's line that it would always consider buybacks alongside potential acquisitions and its plans to spend $80 billion in the five years to 2015 to expand iron ore, coal, copper, uranium and natural gas production.

"We'll continue to pursue acquisitions where we believe they represent value for shareholders," Nasser told shareholders.

Despite shaky global markets, analysts are still expecting the company to post 7 percent profit growth this year to another record around $23.2 billion.

Iron ore miners, led by Brazil's Vale (VALE5.SA) and Rio Tinto, have also said they expect the recent slump in iron ore prices to be temporary, with prices already recovering.

(Additional Reporting by Rebekah Kebede in PERTH; Editing by Ed Davies and Alex Richardson)

Worries about growth weighed on sensitive sectors like financials and materials. Losses deepened after ratings agency Fitch said even though the outlook on the U.S. banking industry is stable, it could worsen if the euro-zone's debt crisis is not resolved quickly.

Earlier, Moody's cut ratings on various German public sector banks, citing a lower likelihood of external support if it were required.

Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey, cited both rating agencies' moves as catalysts for the sharp selloff in late trading.

The S&P financial sector .GSPF fell 2.5 percent and the KBW capital markets index .KSX dropped 3.6 percent.

Fears are growing that the euro zone's crisis is moving to economies that had been considered more protected from the problems. The yield spread of 10-year French government bonds over their German equivalents widened to a euro-era high.

The Bank of Japan voiced concern about possible negative effects on Japan's growth from Europe's debt crisis, while England's central bank slashed its growth forecasts.

Markets sagged overnight as investors reacted to rising yields overseas. The concern is that euro-zone leaders will be unable to enact reforms to reduce debt and promote growth. The U.S. equity market's swings have become increasingly tied to gyrations in European credit markets.

About 7.4 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, below this year's daily average of 8 billion shares.

The Dow Jones industrial average .DJI lost 190.57 points, or 1.58 percent, to 11,905.59. The Standard & Poor's 500 .SPX fell 20.90 points, or 1.66 percent, to 1,236.91. The Nasdaq Composite .IXIC dropped 46.59 points, or 1.73 percent, to 2,639.61.

Among declining stocks, computer maker Dell Inc (DELL.O), missed quarterly revenue estimates and its shares fell 3.2 percent to $15.13.

Rambus Inc (RMBS.O) shares tumbled 60.6 percent to $7.11 after the company lost an antitrust trial against Micron Technology Inc (MU.O) and Hynix Semiconductor Inc (000660.KS).

Micron shares jumped 23.4 percent to $6.74.

Shares of Abercrombie & Fitch Co (ANF.N) slumped 13.6 percent to $48.10 after the teen clothing retailer's quarterly profit missed estimates by a large margin.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of 16 to 5 and on the Nasdaq more than eight stocks fell for every three that rose.

(Reporting by Rodrigo Campos; additional reporting by Caroline Valetkevitch; Editing by Kenneth Barry)

Facing rising borrowing costs as its 'AAA' credit rating comes under threat, France urged stronger ECB action, adding to mounting global pressure spelled out by U.S. President Barack Obama.

Bond market turmoil is spreading across Europe. Italian 10-year bond yields have risen above 7 percent, unaffordable in the long term. Yields on bonds issued by France, the Netherlands and Austria -- which along with Germany form the core of the euro zone -- have also climbed.

"The ECB's role is to ensure the stability of the euro, but also the financial stability of Europe. We trust that the ECB will take the necessary measures to ensure financial stability in Europe," government spokeswoman Valerie Pecresse said after a cabinet meeting in Paris.

French Finance Minister Francois Baroin repeated Paris's view that the euro zone's EFSF bailout fund should have a banking license, something Berlin opposes. Such a move would allow the fund to borrow from the ECB, giving it extra firepower to fight the spreading crisis.

"The position of France ... is that the way to prevent contagion is for the EFSF to have a banking license," Baroin said on the sidelines of an awards ceremony.

But German Chancellor Angela Merkel made clear Berlin would resist pressure for the central bank to take a bigger role in resolving the debt crisis, saying European Union rules prohibited such action.

"The way we see the treaties, the ECB doesn't have the possibility of solving these problems," she said after talks with visiting Irish Prime Minister Enda Kenny.

The only way to recover markets' confidence was to implement agreed economic reforms and build a closer European political union by changing the EU treaty, Merkel said.

ECB policymakers continue to reject international calls to intervene decisively as Europe's lender of last resort, stressing that it is up to governments to resolve the debt crisis through austerity measures and reforms.

However, many analysts believe such a move now represents the only way to stem the contagion, despite the potential risk of inflation from printing money.

SHORT RESPITE

Traders said the ECB bought Spanish and Italian bonds on Wednesday, but the respite was short and there was no sign of a change in its policy of limited, stop-go purchases to calm markets temporarily while maintaining pressure on governments.

Global equity markets and the euro slid as investors doubted the ability of governments in the euro zone to contain the crisis.

Fitch Ratings warned it might lower its "stable" rating outlook for U.S. banks because of contagion from problems in troubled European markets.

Obama, on a visit to Australia, turned up the heat on Europe to act more boldly to extinguish the bush fire.

"Until we put in place a concrete plan and structure that sends a clear signal to the markets that Europe is standing behind the euro and will do what it takes, we are going to continue to see the kinds of market turmoil we saw," he said.

Obama said that, while new unity governments in Italy and Greece represented progress, Europe still faced a "problem of political will.

International efforts to fight Europe's worsening debt crisis received a setback when the International Monetary Fund's European chief resigned, citing personal reasons.

Antonio Borges last month suggested the IMF could buy Spanish or Italian bonds alongside the euro zone's bailout fund but quickly backtracked, saying the IMF could only lend to states, not intervene in bond markets directly.

In Italy, new Prime Minister Mario Monti was expected to unveil his policy program Thursday the day after being sworn in at the head of a 16-strong cabinet of experts.

The respected economics professor kept the key economy portfolio for himself and the broad thrust of his platform is expected to match reform demands made by European authorities.

Controlling public spending, reforming the pension system, loosening job protection measures, opening up protected professions to more competition and imposing a tax on private assets are some of the measures he could announce.

With Italy's borrowing costs now at untenable levels, Monti will have to work fast to calm financial markets that Italy needs to refinance some 200 billion euros ($273 billion) of bonds by the end of April.

Some analysts say his cabinet of technocrats could be vulnerable to ambushes in parliament, but Monti said the absence of politicians in the team would free its hands.

Federico Ghizzoni, chief of Unicredit, said he would ask the ECB to increase access to central bank funds for Italian banks, whose funding problems have grown since Italy was sucked into the debt crisis in July.

SYSTEMIC CRISIS

Greece's new technocrat Prime Minister Lucas Papademos faced mass street protests Thursday, the day after winning a confidence vote for a national crisis coalition that is already split on the need for further austerity measures.

The size and mood of the rally, the first big protest in almost a month, will signal just how bitterly a restive public will fight further tax rises and spending cuts that international lenders demand in return for a massive bailout.

Greece's main conservative leader Antonis Samaras has refused to bow to EU demands for a written commitment to the bailout program and called for elections in three months to restore social peace.

New data showed that Greece's austerity-fueled recession had widened the budget deficit in October, the government failing to boost revenues despite unpopular new taxes.

ECB President Mario Draghi has said the 17-nation currency bloc will be in a mild recession by the end of the year, making it tougher for governments to put their finances in order, and Europe's debt crisis is also increasing strains in the money market, the plumbing of the international financial system.

Euro zone banks are finding it harder to obtain dollar funding. While the stresses are nowhere the levels of the 2008 financial crisis, they have continued to mount despite ECB moves to provide unlimited liquidity to banks.

($1 = 0.734 Euros)

(Additional reporting by Emelia Sithole-Matarise in London, Gareth Jones and Dina Kyriakidou in Athens, Deepa Babington in Rome, David Lawder in Washington; Writing by Paul Taylor and Jon Boyle; Editing by Michael Roddy)

The European Central Bank bought euro zone government bonds to stop a selloff, traders said. Equities rose on the move but then lost ground as the yield on Italian 10-year bonds continued to hover near 7 percent.

The yield spread of 10-year French government bonds over their German equivalents widened to a euro-era high on fears the debt crisis was starting to move to economies that were until recently thought to be more isolated from the problems.

"It is clear that they (Europe) have a severe liquidity crisis developing and it is becoming more and more clear that they are going into a severe recession," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

"They have got to get their act together and resolve this issue or this recession is going to be worldwide."

Bank of Japan Governor Masaaki Shirakawa said the crisis was already affecting emerging nations and Japan in multiple ways, while the Bank of England forecast Britain was on the brink of a contraction.

S&P 500 futures fell 11.2 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Dow Jones industrial average futures were off 83 points, and Nasdaq 100 futures lost 12 points.

U.S. equity investors have been closely watching European sovereign debt prices and the euro currency, currently barometers of risk aversion for the wider market. Trading has been volatile, with large intraday swings as sentiment oscillates with developments is Europe.

Still, U.S. stocks have shown resilience, clinging to the top end of their recent trading range at around 1,250 on the S&P 500. Traders watched for a break below 1,230 as a potential warning sign.

In U.S. company news, Dell Inc (DELL.O) missed quarterly revenue estimates, and the computer maker said full-year revenues could be hurt by an industrywide shortage of hard drives. The shares fell 1.8 percent to $15.35.

Shares of Abercrombie & Fitch Co (ANF.N) slumped 11 percent to $49.80 after the teen clothing retailer's quarterly profit missed estimates by a huge margin.

Target Corp (TGT.N) posted higher quarterly profit on higher food sales and as a 5 percent discount to cardholders drew shoppers. The shares rose 2.4 percent to $54.50.

October's consumer price index is expected to show prices were flat in the month. The data is due at 8:30 a.m. EST (1330 GMT). Industrial production is seen creeping up by 0.4 percent in October. That release is slated for 9:15 a.m. EST (14:15 GMT).

(Editing by Jeffrey Benkoe)

The memo, obtained by Reuters on Wednesday, was sent to Olympus employees the previous day by the firm's new president, Shuichi Takayama, who also vowed in the message to restore public trust in the once-proud maker of cameras and endoscopes.

Japan's securities watchdog, police and prosecutors are probing the 92-year-old company after Olympus admitted last week that it had hid investment losses for decades using funds from M&A deals. The U.S. Federal Bureau of Investigation and the U.K. Serious Fraud Office are also looking into the case.

A third-party panel appointed by Olympus to investigate the scandal is expected to report its findings in early December.

"We will wait for the third party panel to report, and we are preparing to take firm legal action, including criminal complaints, against any manager it finds responsible," Olympus President Takayama told its employees on November 15 in an internal e-mail, which was obtained by Reuters on Wednesday.

The email did not name specific executives.

Investors are speculating that several Olympus officials will bear the brunt of any punishment for the scandal, hoping that the company itself will avoid the ultimate market sanction, a delisting from the Tokyo stock exchange.

"As long as market participants think that Olympus will not be delisted, the stock will continue to rise. The market is buying back what they sold last week," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

Olympus' share price, which had lost as much as 80 percent of its value after the scandal broke last month, closed up more than 15 percent on Wednesday at 740 yen in heavy turnover. It was untraded with a glut of buy orders on Tuesday after rising its daily limit the day before.

In a sign regulators are getting serious after a slow start, Japan's Securities Exchange and Surveillance Commission (SESC) is considering recommending criminal charges against those involved in wrongdoing at Olympus, a source familiar with the matter has told Reuters.

The source said the SESC might also urge that Olympus be fined for false financial reports, a move that could allow the company to stay listed although that outcome is not assured.

The Bank of Japan also is trying to gather information from related financial firms about Olympus' past transactions, the central bank Governor Masaaki Shirakawa said.

"It is regrettable that doubts have arisen about the transparency and fairness of corporate management. It is vital that accurate information be disclosed promptly," Shirakawa said.

TRIO AT THE HEART OF SCANDAL

Olympus executives are likely to face questioning on a voluntary basis by Tokyo prosecutors as early as this week, the Nikkei business daily reported on Wednesday.

Olympus President Takayama has blamed his predecessor, Tsuyoshi Kikukawa, who quit on October 26, along with former vice-president Hisashi Mori and internal auditor Hideo Yamada for the cover-up, and has said he would consider criminal complaints against them. Mori had been fired and Yamada has offered to resign.

The Nikkei said Kikukawa, Mori and Yamada had chosen the financial advisory firm for its controversial 2008 acquisition of U.K. medical devices maker Gyrus, a decision normally taken by the entire board of directors.

The trio also made the decision to increase payments to the advisory firm -- payments that were used to conceal huge losses on securities investments by Olympus, the daily said, citing persons familiar with the company.

Takayama, who took over last month, called on employees in the internal email to unite to overcome the corporate crisis and not be "deluded" by an online petition led by an ex-Olympus director to reinstate ousted CEO Michael Woodford.

The Briton was fired on October 14 and then publicly pressed the firm to come clean on mysterious M&A deals which include record acquisition advisory fees in history.

"I am confident that the actions of all of you, who are working for the sake of Olympus with a sense of mission, will revive trust in Olympus so that the brand will shine," the email said. "Now is not the time to be wracked with fear and doubt."

After weeks of denial, Olympus admitted last week it had found that funds related to its $2.2 billion purchase of Gyrus, which involved a huge advisory fee of $687 million, as well as payments totaling $773 million for three tiny domestic firms, were used to hide losses on securities investments stretching back to 1990.

Analysts say the future of Olympus' big and profitable medical equipment business may rest in an eventual buyout by a rival or a private equity fund and Fujifilm and Hoya, the second- and third-largest players in the endoscope business, are obvious potential bidders.

But Fujifilm President Shigetaka Komori told a news conference on Wednesday it was premature to comment given that there were so many uncertainties surrounding the affair.

Olympus' lenders met company executives on Wednesday but were not likely to demand changes in loan terms or take any abrupt steps that could hurt their own interests, banking sources told Reuters before the closed-door meeting at a Tokyo hotel.

(Additional reporting by Ashutosh Pandey in Bangalore, Taiga Uranaka, Edmund Klamann, Ritsuko Shimizu and Tim Kelly in Tokyo; Writing by Linda Sieg; Editing by Mark Bendeich and Miyoung Kim)