Ericsson's provision for U.S. probe hints of smaller fine, shares jump

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STOCKHOLM (Reuters) - Ericsson (BS:ERICAs) said on Thursday it would book a 2.3 billion Swedish crown ($220 million) provision for an expected fine from the U.S. justice department over the company's handling of an earlier settlement relating to its operations in Iraq.

Ericsson's share price surged 7.7% in afternoon trading, as analysts had expected the Iraq scandal could lead to 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.

($1 = 10.4692 Swedish crowns)

(This story has been refiled to add dropped name in the sixth paragraph)