(Bloomberg) -- Renault SA has some big decisions to make now that its top executive, Carlos Ghosn, has been formally indicted in Tokyo for financial improprieties at partner Nissan Motor Co.

  • In a sign that the investigation is deepening, Ghosn was also re-arrested on Monday on allegations of understating his income for a new time period, Japanese prosecutors said. That means he will be denied a chance to be released on bail for now.

Key Insights

  • The stepping up of the Japanese probe puts Renault’s board in a bind. Last month it decided to keep Ghosn on as chairman and chief executive officer, with the carmaker’s most important shareholder, the French government, stressing his innocence until guilt is proven. An interim leadership team was put in place.
  • Ghosn’s position within the company has now become more tenuous. He was kept on because no hard evidence was forthcoming from Nissan, benefiting from a larger-than-life status within Renault after decades spent advancing its interests. There are suspicions within Renault and the state that Ghosn’s legal problems are the result of a power struggle within Nissan and the Renault-Nissan-Mitsubishi Alliance, which was held together by Ghosn.
  • Yet within the Renault board, fault lines are emerging. Some members are pondering a more permanent solution than the stop-gap interim management team put in place after the arrest, Bloomberg has reported. The hard-line CGT union, whose voice is represented by Richard Gentil on the board, has been calling for deeper change, arguing that Ghosn’s reputation is now tainted.
  • The French company is conducting its own investigation into the pay package of Ghosn and top managers, aiming to have the first conclusions this week. French President by Emmanuel Macron faces a month-long “yellow-vest” protest movement over inequality, lowering the chances the state will be seen coming to the executive’s aid.

Market Reaction

  • The shares fell 1.5 percent to 56.72 euros at 9:46 a.m. in Paris, taking losses since the last trading day before Ghosn’s arrest to 12 percent. Nissan dropped 2.9 percent in Tokyo.
  • Renault’s management turmoil comes at a bad time for the French carmaker. The Ghosn-related losses compound existing pressure from the China-U.S. trade war, emissions standards and mounting spending on electric and self-driving cars. Since the start of the year, the stock has dropped by about a third.

Get More

Ghosn, Nissan Indicted in Japan as Pay Scandal EscalatesRenault Is Said to Be Near First Conclusions in Ghosn Probe (1)Where’s Carlos? Ghosn to Face Japan’s Legal System: QuickTake

To contact the reporters on this story: Ania Nussbaum in Paris at anussbaum5@bloomberg.net;Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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