Last week Kobe Steel revealed that it had been involved in a 10 year cover up scandal by over-grading its steel quality. The results were devastating; its stock plummeted over 20%, it revealed that it had sold the falsely-branded steel to major clients such as Toyota and Honda and it dealt a serious blow to Japan’s credibility.
Yet just when analysts thought things could not get any worse, they did. Today, Reuters announced that:
Japan’s third-largest steelmaker, which supplies the world’s top airline and automobile manufacturers, also said it had violated statutory standards set by the industry ministry, not just specifications agreed with customers.
In short, the company broke federal regulatory laws. Couple this with the fact that Reuters mentions that the company has already lost clients as a result of the scandal and things look to be getting significantly worse for Kobe Steel.
The problem also looks to be growing beyond their steel sales. The BBC reports that:
The company has also stopped shipping about 43% of copper products from its Hatano plant, near Tokyo, because it was found to violate Japanese Industrial Standards (JIS) regulations, Kobe said on Friday.
The sheer scope of the production freezes, legal costs and loss of face should have investors very worried. Kobe Steel has turned into one of the biggest corporate scandals in recent memory and with investigations ongoing, things look like they will get worse before they get better.
Investors may want to consider insulating themselves from the Japanese markets for the time being. The risks of investing in Tokyo have skyrocketed as of late and you don’t want to end up losing a chunk of your capital as the situation develops. As always, make the decision that is right for you when investing.
To read Reuters’ article on the latest developments in the Kobe Steel scandal, click here.
To read the BBC’s article on the Kobe Steel scandal, click here.
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