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Mitsubishi Will Likely Cut Earnings Forecast on Rogue Oil Losses

Teo Chian Wei

(Bloomberg) -- A $320 million loss by a rogue oil trader at Mitsubishi Corp.’s Singapore unit will likely prompt the Japanese company to cut its full-year net income forecast, SMBC Nikko Securities Inc. said.

"While the losses should be one-off, they will weigh on earnings in the second quarter," analyst Akira Morimoto wrote in a note dated Sept. 20. Against a backdrop of recent declines in coking coal prices, it seems likely that the firm will have to cut its full-year net income guidance of 600 billion yen ($5.6 billion), he said.

Mitsubishi said Friday that a trader at its Petro-Diamond Singapore Pte unit executed unauthorized transactions disguised as legitimate hedges for customers. The Chinese national, whom the company declined to name, was fired and reported to police, according to a statement.

SMBC Nikko’s Morimoto kept Mitsubishi stock at a neutral rating and its target price at 2,900 yen. His estimate for Mitsubishi’s full-year profit of 582 billion yen excludes the oil trading losses. The Japanese trading company has seven buy ratings, five holds and no sell recommendations, with an average target price of 3,231 yen, according to Bloomberg data.

Nomura Securities analyst Yasuhiro Narita maintained his buy rating and a target price of 3,580 yen. "It is unclear how this will affect bottom-line profits attributable to owners of the parent as the company has yet to disclose other related trading losses or the effect of tax allocation accounting," he wrote in a Sept. 20 note.

SMBC Nikko said the inadequate supervision of the repeated derivatives trades raises questions about Mitsubishi’s risk management process.

"We cannot avoid getting a negative impression as to why this was not detected earlier and it raises questions about the firm’s risk management framework and governance," Morimoto wrote in the note.

To contact the reporter on this story: Teo Chian Wei in Tokyo at cwteo@bloomberg.net

To contact the editors responsible for this story: Shamim Adam at sadam2@bloomberg.net, Teo Chian Wei

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