By Laurence Frost and Chang-Ran Kim
PARIS/TOKYO (Reuters) - France urged Renault on Tuesday to replace CEO Carlos Ghosn after his arrest in Japan on financial misconduct allegations, which sources said formed part of an investigation extending to its broader carmaking alliance with Nissan.
Ghosn, one of the car industry's best known leaders, was arrested on Monday after Nissan Motor Co said he had engaged in wrongdoing at the Japanese firm, including personal use of company money and under-reporting his earnings, for years. Nissan plans to remove him as chairman on Thursday.
In a sign Nissan may be seeking to loosen its French parent's hold on their alliance, the Japanese company told Renault's board on Monday it also had evidence of potential wrongdoing at Renault-Nissan BV, the Dutch venture overseeing alliance operations under Renault's ultimate control, three people with knowledge of the matter said.
The private communication came from Nissan Chief Executive Hiroto Saikawa, whose company is 43.4 percent-owned by Renault in a complex alliance forged by Ghosn over almost two decades.
In its first public comment since the arrest, Renault said it remained focused on its partnership with Nissan and Mitsubishi.
"Thierry Bollore, chief operating officer of the Renault group, is specifically in charge of the continuity of the executive committee of Renault group," it said, sketching out interim arrangements for keeping the company running.
Renault's board was due to meet later on Tuesday.
The French state, which owns 15 percent of Renault, has begun to distance itself from Ghosn, a French citizen who was born in Brazil and is of Lebanese descent.
"Carlos Ghosn is no longer in a position where he is capable of leading Renault," French Finance Minister Bruno Le Maire told France Info radio.
"Renault has been weakened, which makes it all the more necessary to act quickly," he said.
Following talks between Le Maire and his Japanese counterpart Hiroshige Seko, the two ministers issued a joint statement reaffirming support for the Renault-Nissan alliance and a "shared wish to maintain this winning cooperation".
MAJOR PLAYER
Close to bankruptcy when Renault bought its stake in 1999, Nissan has recovered to be the engine of an alliance that generates synergies for both companies and allows them to rival Volkswagen and Toyota on the global stage.
But there have long been tensions as Nissan, while almost 60 percent bigger than Renault by sales, remains the junior partner in their shareholding hierarchy with a smaller reciprocal 15 percent non-voting stake in Renault.
Renault shares were down 3 percent at 1405 GMT, having slumped more than 8 percent on Monday. Nissan stock fell another 5.5 percent, while Mitsubishi Motors, the third member of the alliance, ended down nearly 7 percent.
Mitsubishi Motors' CEO Osamu Masuko said it could be hard to manage the alliance without the unifying figure of Ghosn.
"I don't think there is anyone else on Earth like Ghosn who could run Renault, Nissan and Mitsubishi," he told reporters in Tokyo.
Bank of America Merrill Lynch cut its rating on Renault to "neutral" from "buy", while Exane BNP Paribas downgraded it to "neutral" from "outperform".
DIFFICULT TIME
Ousting Ghosn will pose questions about an alliance he had pledged to consolidate with a deeper tie-up, before eventually stepping back from its operational leadership.
It comes at a difficult time for the industry, with tighter emissions regulations, a decline in sales of diesel vehicles and expensive investments in electric and self-driving technology.
Ghosn's alleged improprieties also raise questions over governance at the alliance in which the three partners' boards are all chaired by a single executive.
One Nissan-headquartered manager told Reuters he was concerned decision making at the alliance could slow due to the lack of a unifying figure.
The manager, who declined to be identified as he was not permitted to speak to the media, said he was also worried Ghosn's departure could hit sales as fans of the charismatic leader abandon the company and corporate customers bound by compliance rules put orders on hold due to the scandal.
Japan's Nikkei business daily, citing unidentified sources, said Ghosn had received share price-linked compensation of about 4 billion yen ($36 million) over a five-year period to March 2015, but it went unreported in Nissan's financial reports.
The financial reports also did not mention annual compensation of 100-150 million yen Ghosn received from the automaker's overseas subsidiaries, the newspaper said.
Nissan declined to comment on the report.
Japanese public broadcaster NHK also reported Nissan paid billions of yen to buy and renovate homes for Ghosn in Rio de Janeiro, Beirut, Paris and Amsterdam, citing unidentified sources. The properties had no business purpose and were not listed as benefits in filings to the Tokyo bourse, NHK said.
There has been no comment from Ghosn on the allegations, and Reuters could not contact him for comment.
A French diplomatic source said the country's ambassador in Tokyo had seen Ghosn on Tuesday as part of usual procedures for a French citizen being held in Japan.
($1 = 112.4400 yen)
(Additional reporting by Sam Nussey, Leigh Thomas, John Irish, Sudip Kar-Gupta and Kiyoshi Takenaka; Editing by Keith Weir and Mark Potter)
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