Nomura Holdings Inc. (8604), Japan’s largest investment bank, was involved in an insider-trading case connected to Inpex Corp. (1605)’s 2010 equity offering, according to a person with knowledge of the matter.
Chuo Mitsui Asset Trust & Banking Co. obtained non-public information from an employee of one of the lead underwriters on Inpex’s sale, Japan’s Securities and Exchange Surveillance Commission said in a statement yesterday.
“Nomura expresses its regret, and will continue to cooperate fully in the investigation,” the Tokyo-based securities firm said in a statement on its website, without explicitly confirming its role in the case. Nomura was a global coordinator on the 507 billion yen ($6 billion) sale.
Shares of Nomura dropped on concern that the incident may mar its reputation and distract Chief Executive Officer Kenichi Watanabe as he tries to generate profits overseas while fending off competition at home. The case is the latest to taint corporate Japan after AIJ Investment Advisors Co. was suspended over missing assets and Olympus Corp. (7733) covered up losses.
“This incident creates uncertainty for Nomura that may affect its underwriting business as well as the rebound in the stock,” said Takehito Yamanaka, a Tokyo-based analyst at Credit Suisse Group AG, who has an “outperform” rating on the shares. “It also clouds the outlook for the securities industry itself. We need to watch how the regulators will carry out their investigations.”
Shares of Nomura fell 5 yen, or 1.3 percent, to 391 yen at the close of trading in Tokyo, limiting its gains this year to 68 percent. The benchmark Nikkei 225 Stock Average (NKY) rose 0.4 percent. Nomura fell 5.5 percent yesterday in the U.S. market.
The cost to insure the bonds of the brokerage unit, Nomura Securities Co., against default for five years jumped 20 basis points yesterday, the most since November, to 270, according to CME Group Inc.’s CMA in New York. Credit-default swaps on Nomura’s debt rose 1.7 basis points. The contracts rise as perceptions of creditworthiness deteriorate.
Japanese regulators have been studying trading surrounding equity offerings, responding to criticism from investors who allege leaks on financing plans are eroding confidence in the stock market. The securities watchdog yesterday chastised the underwriter involved in the Inpex insider-trading case, without naming the firm or commenting on potential penalties.
It’s a serious matter for a brokerage to be disclosing confidential information, an SESC official told reporters at a briefing yesterday on condition of anonymity, citing the commission’s policy. The incident may damage the underwriter’s reputation and that of the Japanese equity market as a whole, the official said, adding that the regulator will continue to investigate insider trading before big share offerings.
“It’s appropriate that the regulators take tough action against anyone who breached the law, especially after the AIJ issue,” said Mitsushige Akino, who oversees about $600 million at Ichiyoshi Investment Management Co. in Tokyo. “Japan has had a history of shares plunging before corporate actions, such as public offerings.”
An employee of Chuo Mitsui Asset, a unit of Sumitomo Mitsui Trust Holdings Inc. (8309), traded on information linked to the share sale by Inpex, Japan’s biggest energy explorer, the SESC said. As well as Nomura, Goldman Sachs Group Inc. (GS), Mizuho Securities Co. and JPMorgan Chase & Co. (JPM) were also underwriters.
The SESC recommended fining Chuo Mitsui Asset 50,000 yen ($600) for the alleged breach, an amount that corresponds to the fees the company earned from selling Inpex shares for customers.
A salesperson of the underwriter passed the information on to a Chuo Mitsui Asset fund manager on June 30, 2010, days before the official July 8 announcement of the offering, the SESC said. Inpex shares slumped about 10 percent in the following month.
Chuo Mitsui Asset’s employee sold 210 shares of the energy explorer from July 1 to July 7 for more than 100 million yen on behalf of clients, the watchdog said. Of those, it short sold 120 shares, according to the statement.
In a short sale, an investor sells borrowed stock with the intention of repurchasing it later at a lower price and returning it to the lender, pocketing the difference.
In June 2009, Nomura said it fired an employee who worked in its mergers advisory department because he breached an internal rule on insider trading by passing on information concerning takeover bids to an acquaintance.
Nomura’s credit rating was cut to the lowest investment grade last week by Moody’s Investors Service, which said global competition raises questions over profitability. The Japanese firm is trimming $1.2 billion of expenses that mounted since it bought bankrupt Lehman Brothers Holdings Inc.’s Asian and European operations during the 2008 global financial crisis.
Sumitomo Mitsui Trust is “fully cooperating” with the SESC on the investigation, the Tokyo-based company said in an e- mailed statement. “If something that needs to be disclosed arises, we will announce it in a timely manner.”
Its stock rose 2.2 percent to 283 yen at the close today.
Inpex shares climbed 1.4 percent to 571,000 yen. The energy company said in a statement that it “fully complies” with its internal guidelines for preventing insider trading.
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