• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

Is Credibility-Challenged Toshiba Japan's Worst-Run Company?

It made up its profits for years and now faces billions in dollars of losses even as shareholders want to sue it for millions. That's just for starters.
By ALEX FREW MCMILLAN
Apr 04, 2017 | 09:30 AM EDT
Stocks quotes in this article: SMFG, MFG, MTU, TSHTY, TOSYY

Could things get worse for Toshiba (TOSYY) ? It's tempting to say no, with the company's shares already shedding more than one-quarter of their value this year. It faces Japan's biggest-ever industrial loss. And it appears unable to make sense of its own finances, which it previously lied about for years.

But just when you think Toshiba has reached its nadir, it finds a way to sink another level lower.

A Toshiba that is searching for spare change in its pockets was due to meet with its lenders on Tuesday, Reuters reported exclusively. It's asking that it be able to use shares in its lucrative chip business and other subsidiaries as collateral. That would help stave off the banks calling in their loans.

Its shares got hammered for a second day on Tuesday as a result, falling 9.4% in Tokyo trade. After another 5.5% drop on Monday, they're now down 27% for the year. Tuesday's performance made Toshiba by far the worst constituent in the benchmark Nikkei 225 index, which itself was down 1% for the day to a 10-week low.

Toshiba confirmed the meeting with its banks but declined to disclose any details. It suggested a similar arrangement last month. But this latest move, which also would include shares in units such as Toshiba Tec (TSHTY) , smacks of desperation.

Toshiba is trying to sell the chip business to offset $6.3 billion in losses due to cost overruns at two nuclear power plants that Westinghouse Electric was building. Westinghouse Electric, which Toshiba bought in 2006, filed for Chapter 11 bankruptcy on March 29. As a result, Toshiba anticipates a companywide loss of ¥1 trillion ($9 billion) for the fiscal year that just ended on March 31.

The banking operations of Sumitomo Mitsui Financial Group (SMFG) and Mizuho Financial Group (MFG)  both had asked Westinghouse to file for Chapter 11, the Nikkei reported late last month, so that the fiscal radiation from the nuclear losses could be contained.

Small creditors oppose the idea of Toshiba using shares as collateral because they're worried big banks will get the bulk of the valuable shares in the money-spinning chip unit. And Toshiba's minority shareholders are furious.

Toshiba has a "chronic culture of lying," one shareholder told management last Thursday, when 1,300 of his kin assembled to grill the executives. "We can't possibly trust such a company. Shame on you."

Stockholders don't believe the losses have come to a close with the bankruptcy filing, and they have excellent reason to doubt the 141-year-old company. In a separate case, Toshiba still faces multimillion-dollar lawsuits from lenders and shareholders after it confessed in 2015 that it had been inflating its profits since as far back as 2008. 

For instance, Mitsubishi UFJ Financial Group (MTU) , another of its major lenders, reportedly is preparing to sue the company to claim back ¥1 billion ($9.1 million) on behalf of its pension-fund customers. It's highly unusual for banks, historically so chummy with their clients, to square up against them in public.

Toshiba's finances remain in terrible shape, even if it has stopped just making them up. Indeed, things are so bad that the company itself appears not to be able to make any sense of them. It's likely to miss a third deadline for reporting its latest quarterly results, Reuters reported on Friday, causing Monday's stock plunge. Figures for the October-through-December quarter are due April 11.

Its auditor, PricewaterhouseCoopers Aarata (surely terrified of messing up the Toshiba envelope), has some unanswered questions about the company's performance for the year through March 2016. That barrier could force it to request an embarrassing third postponement or face being delisted from the Tokyo Stock Exchange. Due to disagreements with its auditors, Toshiba first delayed the quarterly results announcement in February, then again in March.

Toshiba also apparently is struggling to identify the preferred bidder for its semiconductor unit. It received 10 bids in the first round of bidding, which ended last week, that went as high as ¥2 trillion ($18 billion). After originally wanting to get the sale sorted in May, Toshiba now may not be able to announce the result by the time of its annual shareholder meeting in late June.

Toshiba's troubles highlight many of the fundamental flaws built into how "Japan Inc." operates, as I explained at the end of January.

Big business in the Land of the Rising Sun all too often operates without the interests of shareholders in mind, particularly minority ones, as a system of cross-holdings with entities such as its banks encourages a certain ennui. That's part of the reason not too much has changed economically since the end of the 1980s' bull run.

As the extraordinary meeting last week showed, minority shareholders are now voicing their fury. Whether they will be disappointed yet again by a Toshiba that is already on its knees remains to be seen.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Investing | Global Equity | Markets | Stocks

More from Investing

Specific Stocks Appear Solid but Upward Momentum Can't Yet Be Trusted

James "Rev Shark" DePorre
May 19, 2022 4:29 PM EDT

I remain convinced that we can't begin to talk about a bottom in the indexes until the S&P 500 is in a technical bear market.

Is This the Time to Buy Costco?

Bruce Kamich
May 19, 2022 3:05 PM EDT

Buy a falling knife? No, but this one's intriguing.

Stay on Track While Interpreting the Dow Theory and CSX Corp.

Bruce Kamich
May 19, 2022 2:26 PM EDT

Some investors may be asking whether we're seeing another 'nail in the coffin' of the secular bull market as several transport names get downgraded. Let's not ... go off the rails.

TJX Cos. Is Ignoring the Market's Downdraft

Bruce Kamich
May 19, 2022 1:25 PM EDT

Does this strength have staying power?

These ETFs Will Meet You in the After-Hours Club

Mark Abssy
May 19, 2022 12:30 PM EDT

Let's check three funds that are set to buy the close and sell the open.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 01:44 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10 Portfolio

    We're making a series of trades here.
  • 03:07 PM EDT PAUL PRICE

    Why Is Walmart Down Big Today?

    Besides its poor earnings report Walmart was way...
  • 07:14 PM EDT PAUL PRICE

    A New, Very Scary Movie

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login