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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Introduction Contd...

He was given a great deal of responsibility by the company, and his only regulators were overseas, far from Tokyo."8

In September 1996, Sumitomo disclosed that the company's financial losses resulting from copper trading were much higher than $1.8 bn. The revised loss figure of $2.6 bn represented about ten per cent of Sumitomo's annual sales. In order to control mounting losses, Sumitomo began aggressive liquidation of its uncovered positions in the copper physical and futures market under its new president Kenji Miyahara.

Sumitomo also cancelled its plans to buyback 20 mn of its shares and award Yen 120 mn ($1.1 mn) of bonuses to its senior managers. However, analysts believed that these measures would hardly make up for the damage that had already been done.

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Background Note

Sumitomo was initially established as Osaka Hokko Kaisha Limited in December 1919 with a capital of 35 mn yen. The company entered into the trading business in 1945 with a new name 'Nihon Kensetsu Sangyo Kaisha Limited.'

In 1949, the company got listed on the Osaka, Tokyo and Nagoya stock exchanges. In 1952, it changed its name again to 'Sumitomo Shoji Kaisha Limited.' By 1962, the company had nine business divisions - Iron & Steel, Nonferrous Metals, Electric, Machinery, Produce & Fertilizer, Chemicals, Textile, General Products & Fuel and Real Estate. In 1973, it got listed on the Frankfurt Stock exchange and in 1978 it adopted the name 'Sumitomo Corporation.' Sumitomo consisted of six corporate groups, nine business units and twenty-eight business divisions

(Refer Exhibit I & II for History of Sumitomo and its Organization Chart)...

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8] 'Billion Dollar Loser,' Serrill, Michael E., Time International, June 24, 1996.


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