Nomura, Daiwa Underwriting Snub Credit Negative, Moody’s Says

Nomura Holdings Inc. (8604) and Daiwa Securities Group Inc. (8601)’s exclusion from bond underwriting amid a regulatory crackdown on information breaches is credit negative, Moody’s Investors Service said.

“It points to leakages of confidential information exacting tangible damage on their businesses,” Moody’s analysts led by Senior Credit Officer Maki Hanatate wrote in a weekly note dated today.

Nomura, Japan’s biggest brokerage, was dropped as a lead underwriter for state-owned Development Bank of Japan Inc.’s bond sale because of its involvement in leaking non-public information used for insider trading. Daiwa, the country’s second-biggest brokerage, was excluded from a bond sale being conducted by Kawasaki Heavy Industries Ltd.

Regulators are attempting to restore confidence in the country’s financial markets by investigating short-selling based on tips from underwriters of public offerings. Moody’s said leaks may be “more than a rare occurrence.”

Japan Housing Finance Agency dropped Nomura as underwriter of residential mortgage-backed securities, replaced by Mitsubishi UFJ Morgan Stanley Securities Co., the government agency said in an e-mailed statement today, without elaborating on the reason.

Lasting Impact

“We expect a mounting loss of confidence from this scandal will have a lasting impact on all players in the Japanese market,” Moody’s said. For large Japanese companies seeking advice on takeovers, the crackdown gives them “a reason to use international brokers that have not been implicated in the insider trading scandal,” the credit-rating company said.

Nomura said last month that it cut top executives’ pay and suspended some businesses after acknowledging that employees provided leaks ahead of three share issuances in 2010. The Tokyo-based brokerage is still being inspected by the Securities and Exchange Surveillance Commission.

“Nomura is at risk of tough disciplinary action by the regulator, which could deepen the damage on its international franchise,” Moody’s said.

Daiwa said last month that it will start an internal probe and strengthen controls after the SESC found that an employee of an unidentified brokerage leaked insider information on Nippon Sheet Glass Co.’s 2010 public offering.

To contact the reporter on this story: Russell Ward in Tokyo at

To contact the editor responsible for this story: Chitra Somayaji at

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