Swaps Sink Toyota’s Earnings Last Quarter

Toyota Motor Corp. took a gamble on an interest rate swap last quarter that apparently did not pay off for its financial services arm, according to its financial results announced today.

TMC’s first fiscal quarter ended June 30.

The financial services division’s global operating income, which also includes its U.S. captive, declined by 35.4 billion yen ($355.7 million) to 51.2 billion yen ($514.5 million) during the quarter. Most of the loss came from a 26.9 billion yen ($270.3 million) loss on interest rate swaps.

Toyota generated 6.25 trillion yen ($62.8 billion) in revenue last quarter, up 13.7% compared to the same quarter in 2012.

While we don’t know the exact details of TMC’s interest rate swap, we do know that swaps protect companies from interest rate fluctuations, but changes in currency values could also play a role when swaps cover cross-border assets. In this case, interest rates and currency values declined during the quarter, which might have dealt Toyota a double whammy.