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Ericsson’s provision for U.S. probe hints of smaller fine, shares jump
Global Banking & Finance Review®
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STOCKHOLM (Reuters) – Ericsson said on Thursday it would book a 2.3 billion Swedish crown ($220 million) provision for an expected fine from U.S. authorities for the breach of a settlement reached in 2019.
STOCKHOLM (Reuters) – Ericsson said on Thursday it would book a 2.3 billion Swedish crown ($220 million) provision for an expected fine from U.S. authorities for the breach of a settlement reached in 2019.
Ericsson’s share price surged 7.7% in afternoon trading, as analysts had expected a larger fine similar to the $1 billion it paid in 2019 as part of a bribery settlement.
“This is an incredibly positive outcome given that the market expectations has been that they would get a fine of $1-2bn,” JP Morgan analysts said in a note.
Ericsson had in 2019 settled bribery allegations with U.S. authorities and agreed to be under review for three years. But it failed to fully disclose results of an internal investigation about potential payments to the Islamic State militant group in Iraq, leading to more regulatory scrutiny.
Since the company disclosed details of the investigation, the shares have lost nearly a third of their value as investors fretted over another big fine from the U.S. Department of Justice and the Securities and Exchange Commission.
Ericsson’s announcement indicates that a resolution is nearer than the market expected, which removes much of the overhang to the investment case, Danske Bank Credit Research analyst Mads Lindegaard Rosendal said.
The Swedish telecom equipment maker said it believes its provision was based on a sufficiently reliable estimate of the financial penalty associated with any potential breach resolution.
The charge will be booked in fourth-quarter results that it will publish later this month.
“The Company’s internal investigation and its cooperation with authorities in relation to the allegations in the 2019 Iraq-related internal investigation report remain open and ongoing,” Ericsson said.
Last month, it agreed to extend its independent compliance monitorship until June 2024.
(This story has been corrected to remove erroneous reference to Iraq in the 2019 settlement in first paragraph)
(Reporting by Anna Ringstrom and Supantha Mukherjee in Stockholm, editing by Terje Solsvik and Bernadette Baum)
A provision is an amount set aside in a company's accounts to cover a future liability or loss. It reflects the company's expectation of future expenses or penalties, such as fines or legal settlements.
Regulatory scrutiny refers to the close examination and oversight by regulatory bodies to ensure compliance with laws and regulations. Companies may face increased scrutiny during investigations of potential misconduct.
An internal investigation is a process conducted by a company to examine potential wrongdoing within its operations. It aims to uncover facts, assess compliance, and determine necessary corrective actions.
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