43 Rumors

@ YouDidntDidYou: You’ve believed the “it stayed within Olympus” line, hook and sinker.” It almost certainly DID NOT. We still don’t know a lot of things in this saga, but we do know this: US$1.3 billion LEFT Olympus’s accounts.

They probably got margin called on an investment. By whom, we don’t know. For what investment, we don’t know. How much was actually lost on the original investment we don’t know, either, however, the numbers are pretty staggering, so the loss must have been tangible. My sense is that things are going to get worse, not better, as we find out more detailed information, and that seems to be the assessment of the Japanese investment community, which is ditching Olympus stock as fast as they can find a buyer.

You don’t get margin called unless an investment is going south. Depending upon how you made the investment and how much you leveraged it, you can go very far south. Consider this: you sell options to buy X at US$100 next year. Next year comes around and X is worth US$50. You didn’t have X, so now you have to buy X at US$50 and sell it at US$100. That’s money that would LEAVE Olympus, if they had that kind of investment.

Do they have that kind of investment? Quite probably. One thing the Japanese companies do is hedge against currency shifts (they hedge against other things, too). At least on currency, the Japanese government sometimes comes in and tries to prop up the currency when things start to spiral, as they did when the quake hit earlier this year (they tried to maintain an artificial 80 yen/dollar; most Japanese companies were hedged in the 80′s somewhere).

But I doubt it’s a currency hedge that started this. It’s something else, probably real estate or stock related, as both tanked and never came back.

My point is that the money probably represents direct losses paid out against an investment. An investment, I should point out, that should be on Olympus’ books (and obviously at the wrong value at this point). It’s just a disastrous trickle problem: when they go back and restate everything, Olympus is going to look less profitable than they said, and we’ve all been questioning Olympus’ profits for some time as it is (why are they so low for absolutely dominating a market?).

Note that there are other factors we haven’t discussed yet that play a part in this. Woodford was one of the ones who at the time said Olympus OVERPAID for Gyrus. Not the advisory fees, but the acquisition itself. We now know that Olympus was incentivised to pull the trigger on the Gyrus deal because it would allow them to hide a previous loss in the advisor fees. If they didn’t do a deal, they couldn’t hide US$600m in those fees. So they overpaid. Great, now we have to restate goodwill and other things on the books, too. Since we now know of at least six such acquisition transactions (I suspect there are more), we’ve got a lot of restating to do.

The Japanese investment analyst I’ve been talking to says something like this: it’s probable that the losses from all this acquisition/fee nonsense are going to EXCEED the profit Olympus reported in the 20-year period. Right, and no money has left Olympus, my foot.