Shares of Nissan and Mitsubishi plunge following Ghosn arrest

Shares of Nissan and Mitsubishi plunged when markets opened in Japan on Tuesday, following the arrest of Carlos Ghosn the head of the automobile alliance that also includes France’s Renault.

Shares of Nissan, Japan's second-largest car manufacturer, dropped as much as 6.5 per cent, while Mitsubishi shares slipped 6.9 per cent and Renault shares fell as much as 4.8 per cent on Tuesday after the maverick of the car industry was arrested on allegations of financial misconduct. The benchmark Nikkei 225 index was down one per cent or 238.04 points at 21,583.12 mid-morning, while the broader Topix index was down 0.7 per cent or 11.94 points at 1,625.67.

Mr Ghosn, the chairman of Nissan arrested on Monday, is accused of under-reporting his earnings by about $44 million and using company resources to acquire luxury homes in Amsterdam, Paris, Rio De Janeiro and Beirut, according to Japanese media reports. Greg Kelly, a Nissan board member, was also arrested on Monday.

Mr Ghosn, a Brazilian-French citizen of Lebanese origin, is reported to have been detained after turning himself in to prosecutors upon arriving at Japan's Haneda airport on Monday night. Asahi newspaper published a video clip of a jet with the identification number N155AN being boarded by what appear to be security officers after landing at the airport. The shutters of the windows come down once the officers board the plane however Mr Ghosn is not visible.

On Tuesday, NHK reported Mr Ghosn may have retained money that was intended for other company executives.

Nissan credit default swaps, a derivative that acts as insurance for traders to protect themselves against the possibility of a company not repaying its debt, widened 14 basis points following news of Mr Ghosn’s arrest, according to CMA data.

The detention of Mr Ghosn, who had developed a cult following and was known as 'Mr reformer of Nissan' or 'saviour' has stunned most Japanese who now consider him 'a bad gaijin' (foreigner), one Japanese media executive told The National.

"Still can't believe that Ghosn, the face of Nissan, is now referred to as ゴーン容疑者in Japanese news reports," tweeted Mari Saito, a Japanese reporter.

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Read more:

[ Upheaval at Nissan looks more like a palace coup ]

[ Nissan to dismiss Carlos Ghosn, head of industry's largest global alliance, after arrest ]

[ Who is Carlos Ghosn? ]

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Nissan will propose dismissing Mr Ghosn and Mr Kelly, according to a statement from the company, which said a whistle-blower set off a months-long investigation of the two executives.

"The investigation showed that over many years both Ghosn and Kelly have been reporting compensation amounts in the Tokyo Stock Exchange securities report that were less than the actual amount, in order to reduce the disclosed amount of Carlos Ghosn’s compensation," Nissan said in a statement on Monday. “In regards to Ghosn, numerous other significant acts of misconduct have been uncovered, such as personal use of company assets, and Kelly’s deep involvement has also been confirmed.”

With the arrest, Mr Ghosn's role as chief executive of the Renault-Nissan-Mitsubishi Alliance hangs in the balance. He said as recently as last month that he planned to stay on until 2020, although he stepped down from the top job at Nissan last year, amid reports that the companies plan to possibly restructure the alliance through a possible merger.

Rating agency Standard & Poor's affirmed the long term A rating and stable outlook of Nissan but placed the company on a negative watch.

A breakup of the thee-company alliance is unlikely, said Demian Flowers an analyst at Commerzbank.

"Alliances among automakers of this kind are necessary to keep costs under control, particularly as emissions regulations tighten and we move towards electrification," Mr Flowers told The National. "I don't think any of the companies involved can afford to see a breakdown of the alliance. The key question though is whether we can now expect ties between these companies to deepen. That's what many investors had hoped for (particularly from the Renault side), and that's where hopes have suddenly faded."

On Monday France's President Emmanuel Macron said it was too early to comment. The French government is a 15 per cent stakeholder in Renault and the largest shareholder in the company. The French car-maker owns 44 per cent of Nissan and saw its shares fall as much as 15 per cent when the scandal broke on Monday, the lowest in almost four years.

French finance minister Bruno Le Maire said a board meeting would take place Tuesday night to help put in place an interim leader. Renault's chief operating officer Thierry Bollore has been touted as a possible interim CEO.

The fallout from the Ghosn scandal has prompted Commerzbank to revise its outlook of the French car manufacturer reducing its target share price to €69 from €72. Bank of America Merrill Lynch cut Renault to neutral from buy and said the prospects of a merger between the French auto-maker and Nissan is now unlikely.

Lebanon's foreign ministry said the country would stand by Mr Ghosn "in his ordeal to ensure that he receives a fair trial."