Showa Shell Sekiyu Case Study

Showa Shell Sekiyu’s 1.07 billion loss.

In the year 1985 Showa Shell Sekiyu came into being as a merger between Showa Oil and Shell Sekiyu. The Royal Dutch Shell group owns 50% in this company. It is into petroleum production and sales. It is formed as merger between Showa oil which was formed in the year 1931 and Shell Sekiyu which is over 100 years old. Showa Shell Sekiyu is listed on the Tokyo stock exchange. Showa Shell Sekiyu has a unique blend of both European and Japanese cultures. Recently, in 2004 Aramco of Saudi Arabia which is the largest petroleum producing country took a participatory equity stake in the company. The move has further strengthened the company’s position in the world petroleum market. The main business of Showa Shell Sekiyu was production and sale of petroleum in the local Japanese market. The company showed more inclination towards downstream activities like production and sale of petroleum rather than upstream

It is the latter that is the foreign currency exchange rate risk that did the company in. It was a series of mistakes which were made and left unattended. The losses could have been cut much earlier in the day but the traders hoped, as in a gambling situation to recoup their losses which never happened. The tide never turned in their favour instead only the loss kept accumulating to unprecedented levels and the total exposure of the company was so large that it was in multiples of their annual profits. The story goes that Takeshi Henmi, the President of the company during that time (he and the then Chairman, Kiyoshi Takahashi resigned after this debacle) informed the parent Royal Dutch Shell’s executive that the losses could be in millions of dollars and he expected that it was an error in putting the decimal point by his staff and he was waiting for the correction to be