Bloomberg News

Olympus Scandal Spurs Speculation Via Margin Accounts

November 02, 2011

(Corrects date of Woodford’s dismissal in the second paragraph in a story published on Oct. 21.)

Oct. 21 (Bloomberg) -- A record number of shares in Olympus Corp. are being bought and sold through Japanese margin-trading accounts as investors seek to capitalize on volatility amid a scandal over payments to advisers.

The number of Olympus shares being held through margin accounts has surged to the highest since at least 1997, according to data from Japan Securities Finance Co., a provider of loans and lending services. Olympus has lost half of its market value since Michael C. Woodford was fired as president on Oct. 14 after calling for a probe of $687 million in payments during a $2 billion takeover in 2008.

“Investors see this as a rare opportunity to gain big profits in the short term,” said Kenichi Hirano, a general manager and strategist at Tachibana Securities Co. in Tokyo. “The volatility of Olympus is rising and the share price is likely to swing wildly in both directions.”

The Tokyo-based maker of endoscopes and cameras dropped 6.8 percent to 1,231 yen at close of Tokyo trading, extending a six day slide that has erased more than $4.4 billion from the company’s market value. The benchmark Nikkei 225 Stock Average was little changed today.

PwC Audit

A PricewaterhouseCoopers audit commissioned by Woodford before he was fired said the company may face regulatory and legal scrutiny over payments made to advisers in the 2008 purchase of Gyrus Group Plc. Olympus, which confirmed the magnitude of the payments, said the report was misleading and speculative.

Holdings in margin accounts that profit when the stock gains, known as long positions, surged as much as 94 times to 8.68 million shares since Oct. 13, the Japan Securities Finance data show. Short positions, which bet on declines, soared 10 times in the period.

The average ratio of long positions to short positions over the past five days jumped to 1.3, the highest since December 2010, the data show. That compares with an average ratio for the three months to Oct. 13 of 0.1 times, meaning 10 times as many shares were being sold short as long.

“For speculators who see the market as just a place to play money games, Olympus provides a great opportunity for huge profits,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co. “They are playing it the same way they did with Tokyo Electric Power Co., which plummeted after the devastating earthquake and nuclear power accidents.”

Long positions over shares of Tepco, as the utility at the center of the worst nuclear crisis in 25 years is known, surged as much as 20 times and short positions soared 18 times in the five business days following the March 11 temblor. Tepco’s share price has fallen 86 percent since the day before the disaster, while its 30-day historical implied volatility is still almost 10 times higher than it was on March 10. Tepco shares jumped 36 percent yesterday, the most since the earthquake, and retreated 9.9 percent today.

--Editors: Jason Clenfield, Nick Gentle.

To contact the reporters on this story: Satoshi Kawano in Tokyo at skawano1@bloomberg.net; Masaaki Iwamoto in Tokyo at miwamoto4@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net


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