Investors were quick to price in the arrest of Carlos Ghosn, the iconic leader of the Nissan-Renault-Mitsubishi alliance (which manufactures one of every nine cars sold around the world) and arguably the most prominent personality in the automotive sector in the past decade, sending shares of Nissan, Renault and Mitsubishi lower by double-digits on Monday.
Now, investment bank analysts are scrambling to catch up: Analysts at BAML have cut their rating on Renault from buy to neutral and slashed their price target on the company's shares to 74 euros from 110 euros, arguing that the potential for a more "formalized" alliance between the two companies (possibly consummated via a merger) has diminished because of the scandal.
BAML isn't alone: Citigroup analysts said on Monday that Ghosn's arrest could prevent a "potential collapse" of the Renault-Nissan structure, while Arndt Ellinghorst at Evercore ISI said Ghosn's departure will be a major headwind for Renault and Nissan shares because of its impact on consolidation chances. Soon, Ghosn, who is still chairman of Nissan, Mitsubishi and Renault (in addition to being CEO of Renault), will likely be stripped of all his leadership roles in a purge that will result in nothing short of the death of one of the most widely respected CEOs in Japan.
Then on Tuesday, France's finance minister said the French government (which owns a 15% stake in Renault) was pushing for Ghosn's ouster, saying that the company's deputy CEO is of "great quality" and would be well-positioned to succeed Renault.
Still, the French government is hedging its bets: Bruno Le Maire (Macron's finance minister) said the French government has seen "no proof" of wrongdoing and wouldn't yet ask Ghosn to surrender his board seat, while Renault's senior management said it stood behind Ghosn, offering "full support." Renault's board will meet Tuesday to decide Ghosn's fate. Analysts at Deutsche Bank, meanwhile, said there is a "high likelihood" that Ghosn loses his leadership role at all three companies, according to the FT.
Renault’s Chief Operating Officer Thierry Bolloré took over much of the day-to-day operations of Renault earlier this year.
"We have today a deputy CEO, Mr Thierry Bolloré, who is of great quality. We will see what the board decides, but we need to put in place as quickly as possible an interim leadership," said Mr Le Maire.
Deutsche Bank noted that Mr Ghosn had ceded much of the day-to-day operations at Nissan, Renault and Mitsubishi: “We believe there are highly reputable managers who can run the company, we are not concerned about the health of operations.”
Mr Ghosn, who was credited with rescuing the Japanese carmaker from the brink of bankruptcy, is expected to be removed as Nissan chairman at a board meeting on Thursday.
Many of the details surrounding Ghosn's arrest and the investigation remain unclear (including where Ghosn is being held). Though some more details trickled out on Tuesday, including details of a plot to buy luxury properties under the auspices of Nissan that Ghosn accessed for personal use. Nikkei reported Tuesday that Ghosn received 4 billion yen ($35.5 million) in stock-related earnings over 5 years that also wasn't included in Nissan's earnings reports.
The Japanese group said its internal investigation, which followed a whistleblower complaint, found Mr Ghosn understated his salary for several years, which would be a violation of Japan’s Financial Instruments and Exchange Act.
According to the Tokyo Prosecutor’s Office, Mr Ghosn made nearly ¥10bn ($88.7m) over five years through March 2015, but reported only half of that. If found guilty he could face up to 10 years in prison, a fine of up to ¥10m, or both.
Japanese media on Tuesday cited unnamed people close to the investigation as saying Mr Ghosn had used a string of company-owned residences in Brazil, the Netherlands and elsewhere, located in places that had little or nothing to do with Nissan’s business.
Mr Ghosn could not be reached for comment. However, some analysts and investors told the Financial Times that Nissan’s suggestion Mr Ghosn masterminded his alleged misconduct without widespread internal co-operation was implausible. They also raised questions why the company required an internal investigation to discover how much it was paying its own chief executive.
An internal investigation found that Ghosn and Greg Kelly, the other board member arrested in the scandal, had collaborated to underreport Ghosn's earnings in filings to the Tokyo stock exchange by about 5 billion yen (roughly $44 million) over a five year period ending in March 2015.
In Japan, the maximum punishment that Ghosn could face would be 10 years in prison and a fine of up to 10 million yen (a paltry $89,000). However, Nissan said it also uncovered "numerous acts of misconduct" during its investigation. Whatever those may be, a scandal like this is the last thing the Japanese carmaker needs so soon after Nissan and Mitsubishi got caught up in a global emissions-rigging investigation.