/ 11 November 2011

Olympus shares plummet after 20-year loss admission

Shares in scandal-hit Japanese cameramaker Olympus tumbled by 30% in Tokyo, after the company admitted it had been hiding losses going back more than 20 years and had sacked its vice-president.

The firm, which has become engulfed by a scandal involving offshore payments that has attracted the attention of the United States Federal Bureau of Investigation, said that it may consider criminal complaints against former executives.

The company’s shares have lost 70% of their value in the past month, after ousted British chief executive Michael Woodford blew the whistle on questionable fees paid during acquisitions.

Olympus said on Tuesday that acquisitions had been used to cover up losses made on bad investments. The company said it had been deferring losses since before the 1990s.

The revelations could leave the company open to criminal charges for suspected accounting fraud as well as shareholder lawsuits, putting its future in doubt.

Woodford said: “This is a very big day. The big questions now are: Who helped us, which outside companies? And what monies have they received?”

Calling for the remainder of the Olympus board to resign, he said: “The position of the board and non-executives is untenable now.”

That view was mirrored by Southeastern Asset Management, a 5% shareholder, which said: “The truth behind the allegations made against Olympus management has begun to emerge. We therefore regard it as essential that Tsuyoshi Kikukawa and Hisashi Mori resign as directors, that Hideo Yamada resigns as corporate auditor and that Akihiro Nambu resigns as general manager of the public relations and industrial relations department and director of [Olympus subsidiary] Gyrus immediately and that all of these persons fully disassociate themselves from the company with immediate effect.”

Vice-president Mori will be dismissed, Olympus said. President Shuichi Takayama said the former president and chairman, Tsuyoshi Kikukawa, who resigned two weeks ago, Mori and the auditor, Yamada, were responsible for the suspect transactions.

“I was absolutely unaware of the facts I am now explaining to you. The previous presentations were mistaken,” Takayama admitted.

Woodford was sacked on October 14 after questioning huge payments made in conjunction with acquisitions.

In the case of the purchase of British medical equipment-maker Gyrus, an advisory fee of $687-million to a relatively unknown firm called Axes and its Cayman affiliate, Axam, was equivalent to a third of the total consideration paid.

The purchase was one of those used to hide longstanding investment losses, Olympus said.

Olympus’s worldwide auditor, Ernst & Young, raised concerns about that deal and signed off Gyrus accounts with a qualification, but did not feel the need to resign as the group’s auditor.

Ernst & Young’s predecessor, KPMG, did resign as Gyrus’s auditor, but it admits to taking that action only after being relieved of its duties at Olympus.

Separately, Reuters named a Japanese banker based in the US as a key figure related to the Gyrus transaction. Akio Nakagawa worked for the New York-based firm that won the fee and has had dealings with Olympus for three decades, the news agency reported. —