Toshiba eyes three-year profit markdown in accounts probe; impact seen limited, shares up

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Japan’s Toshiba Corp said an internal probe into accounting irregularities may mean it has to mark down three years of by about 7 percent, soothing investor fears the investigation might blow up into a bigger accounting scandal.

The industrial conglomerate’s shares rose as much as 5 percent in Tokyo after it said late on Wednesday it’s likely to mark down operating profit for the three years ended March 2014 by at least 50 billion yen ($420 million). At 0445 GMT, the stock was up 1.23 percent.

The potential impact was welcomed in the market as comparatively small at 7.2 percent of previously reported earnings, analysts said. The shares had fallen 13 percent since Toshiba spooked investors on May 8, saying it was extending an investigation into inappropriate reporting of some infrastructure project costs and construction work.

Toshiba’s second accounting investigation in less than two years had provided unwelcome echoes for some in the Tokyo market of previous probes that billowed into major corporate scandals. In the highest profile case in recent years, camera and medical equipment maker Olympus Corp in 2011 admitted to a 13-year cover-up that hid $1.7 billion in losses.

“I think the market was relieved,” said Takashi Hiroki, strategist at Monex Securities. “The size of additional loss was not that big.”

The company is in the process of setting up a third-party committee to investigate irregularities, which Toshiba said could reach a different conclusion on treatment of markdowns. The widening of an investigation first announced in April had prompted Toshiba to delay its quarterly earnings announcement and cancel a year-end dividend.

Underlining relief among investors, Toshiba’s 5-year credit default swaps, effectively the cost of insuring against a default, tumbled by about 40 percent. As well the rise in its Tokyo shares, Toshiba saw its American Depositary Receipts surge 12 percent overnight.

As a result of the extended probe, Toshiba said it would not be able to announce financial results for the latest fiscal year until June or later. The firm would normally have released earnings by early May.

($1 = 119.2100 yen)

(Additional reporting by Hideyuki Sano in TOKYO and Umesh Desai in HONG KONG; Editing by Chang-Ran Kim, Stephen Coates and Kenneth Maxwell)