Toshiba Falls By Limit 20%, CDS Soar By Most On Record As Full Extent Of Damage Revealed

Tyler Durden's picture

One day after Toshiba's new CEO, Satoshi Tsunakawa, pulled a page from the book of his ill-fated predecessor Hisao Tanaka who presided over the biggest accounting fraud scandal in the company's history, and bowed down during a press conference to apologize to investors, the company's stock crashed by the limit 20%, bringing its two day loss to 32% and wiping out $5 billion in market cap in two days.

As we noted yesterday, Tsunukawa said that “I apologize to shareholders, business partners and all stakeholders for the trouble we have caused,” after Toshiba said cost overruns at U.S. nuclear reactors it is building were likely to force a write-down of as much as several billion dollars, clouding its turnaround plan after the 2015 accounting scandal. Specifically, the company said it may have to book several billion dollars in charges related to a U.S. nuclear power plant construction company acquisition, rekindling "concerns about its accounting acumen."

The problem is that the nuclear business, together with the semiconductors, has been positioned as one of key pillars underpinning Toshiba's growth which has been trying to shift away from its consumer electronics core. Alas, the latest gaffe now means that much of Toshiba's growth is gone, and the stock price reflect that overnight, when Toshiba's stock plunged by 20%, the most permitted, before it was halted for trading.

The crash wiped out $5 billion off Toshiba's value in two days and prompted a credit rating downgrade on Wednesday, as the company grapples to plug a potential multi-billion dollar hole resulting from cost overrunings from the nuclear business it acquired from Chicago Bridge And Iron. It did not comment on whether that would wipe out its asset value and tip the company into negative net worth. Executives said it could take until February to pinpoint the exact impact.

Toshiba shares, however, took an immediate hit on Wednesday, falling 20 percent to hit the Tokyo exchange's daily downward limit. That follows a 12 percent drop on Monday after initial warnings from the group. As Reuters adds, investors also fretting that a blow to the group's finances could even weaken its competitiveness in its core semiconductor business - specifically investment in 3D NAND, a new advanced type of flash memory - or result in firesales and dilutive share issues.

Adding insult to injury, for the first time in seven years, the value of the group fell below that of tech rival Sharp.

Meanwhile, S&P downgraded Toshiba, already in junk territory, to B- from B, with a "negative" outlook. S&P said it expected shareholder equity to "drastically shrink" as a result of the writedown, eroding the group's resilience, while expected higher working capital would burn more cash. As a result, Toshiba credit default swaps soared by a record 225 bps, surging to an all time wide 370 bps according to a trader quoted by Bloomberg.

"Toshiba's ability to enhance its shareholders' equity is likely to continue to be difficult for the foreseeable future," S&P said, adding it also saw "persistently tough business conditions".

The immediate question for Toshiba's management now is - just like for Monte Paschi - how to plug the capital hole. Credit analysts at SMBC Nikko Securities, cited by Reuters, said that they saw three options as Toshiba deals with the imminent task of enhancing its capital base: making more profits faster, selling assets and increasing capital. Only the middle option is likely in the short term, however.

Toshiba is still burning cash despite a positive bottom line in the first half of the financial year and cannot raise more capital on the stock market while it remains on Tokyo's watch list, where it has been since a 2015 accounting scandal.

"I expect Toshiba to start with asset sales, and then to issue preferred shares if asset sales are not enough. They will start with measures other than (the chip business) listing," one source close to the company said.

Toshiba has said it will consider all options to bolster its finances, even "the positioning" of its nuclear business which is centred around Westinghouse, a U.S. firm bought in 2006. And since investors know a distressed firesale when they see one, Toshiba will be lucky to get anything remotely close to fair market value for the assets it is trying to sell. Our advice, since this could well turn into Japan's "Monte Paschi" debacle, do not retain JPMorgan: after all Dimon's botched recapitalization is one of the main reasons why the third largest Italian bank ended up getting bailed out by Italian taxpayers for the third time in as many years.

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SoDamnMad's picture

Satoshi Mnnnn 

He bows and says he is sorry but we know he slipped his massage girl a small fortune to buy lots and lots of put options.  He is going to get the massage of a lifetime when she covers. 

StackShinyStuff's picture

Is he not supposed to commit ritual suicide at this point?  That is the honorable thing to do...

Perimetr's picture

"the company said it may have to book several billion dollars in charges related to a U.S. nuclear power plant construction company acquisition"

Nothing like that "safe and clean" nuclear power

You know, like at Fukushima and Chernobyl . . .

Nothing like "safe and clean" nuclear waste

that has to be isolated from the biosphere for 100,000 years

Much safer than solar and wind, no doubt.

NoPension's picture

I had to research this. Westinghouse was bought by CBS. Energy unit sold to Brits. Brits sold it to Toshiba.
Westinghouse, as we understood it, no longer exists.
Toshiba seems to be holding the hot potato on what, 3 nuke plants? Nuclear is so fucked up, why in the hell? It seems, reading....mega shit tons of cash are poured into these fucking disasters, with the taxpayer and humanity on the hook in the end.

This....

http://brilliantlightpower.com/

Coming soon...

crackheadwilly's picture

just because it is easy to dump the waste products into the air doesn't mean it doesn't affect "the biosphere". nuclear is still the only option away from oil that doesn't come with negative power balances until year 20-25

Life of Illusion's picture

Toshiba's growth which has been trying to shift away from its consumer electronics core

 

TOSHIBA "MADE IN CHINA" JUNK! YOU GET A JUNK COMPANY.

 

Rich Stoehner's picture

No happy ending with this massage

NoDebt's picture

What is it with the Japanese and nuclear power plants?  It's like they just can't stop having melt downs- physically and now financially.  

 

Mr. Bones's picture

History shows again and again

How nature points out the folly of men

RonnieM's picture
RonnieM (not verified) Dec 28, 2016 7:50 AM

Toshiba could bounce.  It is a good company.

 

The problem is that the markets are ready to fall in  a few weeks. So by the time the markets take Toshiba down even further the company could be decimated. 

Arnold's picture

Could we get (Lord) Blankfein to do that?

nmewn's picture

Clearly this calls for a strongly worded corporate statement about ethics and prattling on about share holder value along with a hefty fine of say...a buck fiddy-five...imposed by the regulatory body of the state on said corporation! Leave his assets alone!!!...lol.

Gawd, someone give me an aspirin.

Grandad Grumps's picture

The price of honesty.

SummerSausage's picture

Ah, the sweet promise of globalism.

Ouagadoudou's picture

Nikkei unchanged. No problem here 

williambanzai7's picture

Surely there is no need for anyone to go to jail...

indygo55's picture

Its safe and clean, in the minds of the sheep, when you make laws that make the discussion of Fukishima a crime. The media won't talk about it there or here for that matter. The fact that the entire Pacific Ocean is dieing because of it makes no matter. As long as the politicians and corporate leaders are protected and get their bonuses and retirements plans all will be well. So the sheep eventually just go back to grazing. Stupid sheep. 

RudeDog2's picture

I've got it - instead of a stock buyback program Toshiba could institute a stock shorting program.  Then every time their stock goes down on the exchange, then company makes a buttload of money.  A self-righting ship. 

https://youtu.be/aqAUmgE3WyM

Catullus's picture

It is a culture of lying.

rmopf2010's picture

Fake people, Honor the samurai ancestors, where is the katana in the belly?

thecondor's picture

I know this may not have anything to do with the book cooking, but I can tell you as a owner of a computer repair/IT company, Toshiba computers are complete fucking garbage.  The hinges on the laptops break all the time due to the cheap brittle plastic they use.  I never recomend Toshiba computers. 

ThanksIwillHaveAnother's picture

Used to have good build quality.  Let me guess: made in China???

highwaytoserfdom's picture

3d nand    this is the In_Q_Tell  bowing to the  first fourth fear terror peddlers.  Japanese are major carbon fiber producers..    This is nothing more than quintessential opportunist of U.S. foreign policy  same as Roosevelt and oil in thirties  and the China Japan tensions

 

These warmonger eletes have no idea we are on to there 80 year war.  Forget broken window refugees and senseless deaths want you dead and in social media ghettos.

 

1. Everyone is forgetting about "oligopoly buyers"

We talk about pricing, but we need to account for the increasing influence on pricing by fewer and fewer large buyers. Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), Samsung (OTC:SSNLF), IBM (NYSE:IBM), HP (NYSE:HPQ), Dell, Lenovo (OTCPK:LNVGY) et al are buying tens of trillions of bits at a time and can demand lower prices from the "oligopoly sellers." This is not just relative to DRAM but to NAND as well. As DRAMeXchange noted recently, third-quarter NAND revenues actually dropped. Why do you think that is? Considering the joint venture status of Toshiba (OTCPK:TOSYY)/SanDisk (SNDK) and Intel (NASDAQ:INTC)/Micron, why doesn't NAND have oligopoly pricing power?

http://seekingalpha.com/article/3735066-micron-bury-3d-nands-disruptive-...

STOP THESE SONS OF BITCHES GLOBALIST.

http://www.zerohedge.com/news/2016-12-24/obama-signs-countering-disinfor...

finally some pricing.  
nuclear regulation and oligopoly is prime example of eugenicist control.    

 

debtor of last resort's picture

Guy's lucky it was halted. At -23 it's harakiri time.

ThanksIwillHaveAnother's picture

Back to where it was months before.  Stock monkeys.

moorewasthebestbond's picture

When somebody breaks into your house and steals your shit, do you let him go after you catch him because he bowed??

highwaytoserfdom's picture

 

Come on guys disruptive 3D NAND puts  the social media ghetto in a real bind of distributive computing Cloud control killer... 

 

Have you guys forgot the AlanBenFellon terror mantra   BTFD    

NEOSERF's picture

RIP Toshiba...Japan Inc. is dead.

buzzsaw99's picture

accounting acumen, lulz

Uskatex's picture

The Russians did it!

pipes's picture

But dumbasses will still argue for the nuclear model.

 

These often are the SAME folks who (correctly) point out the stupidity and inherent flaws in the climate change premises, yet they disengage their logic when it comes to the flawed nuclear premises.

Paracelsus's picture

   The BIGGEST NON STORY OF FUKUSHIMA is that they were cooking a special blend (MOX)

of enriched uranium for a friendly mid-eastern country.

 Reactors produce power, toxic waste, environmental contamination, and nuclear weapons

grade fissionable material. All of this must be considered,not just a single issue.

 One question I have always had is if Nukes are so efficient then why do they always need a huge

amount of cooling water nearby?

  And what idiot in the Pentagon thought it was a great idea to sail a very expensive aircraft carrier

directly off shore during the event, contaminating the ship and crew?

 Just Google "health problems ,US Navy crewmembers, Fukushima exposure".

Next time put Obamas' kids out there in the frontline. Or Hillarys'... Or Donalds'....

 I sure hope all the data they got was worth it...

Boygoy's picture

I'm pretty sure I'd rather own Toshiba than Tesla, Facebook or Twitter. In fact, let me just call my broker...

wow thats crazy's picture

Meeeeeeeee Soooooooooo Sooooooorrrrrrrrrrrryyyyyyyy!

 

IronForge's picture

Is Mr. Tanaka in Prison yet?