Sumitomo Corporation of Japan - The Commodity Derivatives Fiasco

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Case Details:

Case Code : FINC029
Case Length : 13 Pages
Period : 1996 - 2004
Pub. Date : 2004
Teaching Note :Not Available
Organization : Sumitomo Corporation
Industry : Financial Trading, Minerals
Countries : Japan

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts Contd...

The End Result

The disclosure of huge trading losses by Sumitomo, believed to be one of the most conservative and well-managed Japanese companies shook financial markets the world over.

Occurring just after two major corporate disasters - Barings and Daiwa, analysts felt that the disclosure must lead to a serious introspection among various financial regulators and trading firms to improve the existing regulation and supervision procedures.

Unlike the other two disasters, Sumitomo was able to overcome the losses since it had a net worth of $6 bn and another $8 bn in hidden reserves. The losses estimated to be $2.6 bn amounted to only 10 per cent of Sumitomo's annual sales. Sumitomo was also able to prevent further escalation of losses by aggressive liquidation of its uncovered position under its new president Miyahara...

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Exhibit I: History of Sumitomo Corporation
Exhibit II: Organization Chart of Sumitomo
Exhibit III: Copper and Aluminium Cash Settlement Prices (1994-96)
Exhibit IV: Copper Backwardation (1991-96)
Exhibit V: Sumitomo's Management Principles

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