Blog

Our Experts Comment the Times Series

See All the Comments
rss

Fraud Is Their Worst Fear

10 October 2017 by lberuti

When Japanese investors came back from their Health-Sports bank holiday week-end, they were not prepared for the industrial scandal that is engulfing KOBSTL ( Kobe Steel, Ltd ). The maker of metals and alloys announced that some of its staff falsified data about the strength and durability of aluminium and copper products used in trains and planes. These products, which were delivered to more than 200 companies, were made to look as if they met client quality standards. Even though the company added that there haven’t been any reports of safety issues, the cost to KOBSTL could be huge if it has to shoulder the costs of potential recalls, but also in the form of reputational harm and possible legal challenges. Because it is very difficult to anticipate, fraud has always been the main risk credit investors are facing and once they are aware of it, they show no mercy. Since the beginning of 2016 and the energy led commodity crisis, KOBSTL had been a well-behaved credit – some might even call it boring – and the company’s 5-year risk premium had been trading between 50 and 60bps over the past 3 months. Today it soared 180bps and closed at 235bps. It could be the beginning of a much bumpier road ahead.