Nomura CEO Watanabe to Resign Amid Scandal, Nikkei Says

Nomura Holdings Inc. (8604) Chief Executive Officer Kenichi Watanabe and his top lieutenant are preparing to step down to atone for the bank’s role in an insider-trading scandal, according to two people with knowledge of the matter.

Watanabe and Chief Operating Officer Takumi Shibata, both 59, will take responsibility for incidents in which employees leaked information about clients’ share sales to traders, the people said, asking to remain anonymous before an announcement. Keiko Sugai, a Tokyo-based spokeswoman, said Watanabe will hold a briefing at 6 p.m. on management of Japan’s largest brokerage.

The shares rose as investors bet the biggest management shakeup in 15 years may placate clients and regulators after a CEO pay cut and penalizing junior executives for the leaks failed to stem the backlash, costing Nomura its top spot managing bond sales. Watanabe and Shibata, architects of the purchase of Lehman Brothers Holdings Inc.’s European and Asian assets, also presided over an 83 percent slump in the stock.

Watanabe’s resignation “would be a plus for Nomura shares as the company explores ways to reshape itself,” said Kouichi Niwa, a Tokyo-based analyst at SMBC Nikko Securities Inc. “Still, what Nomura needs the most now is to retrieve market trust and boost earnings power.”

Once the world’s biggest securities firm with a market value of $76 billion in 1987, Tokyo-based Nomura has now slumped to a capitalization of $12.3 billion, about one-fourth that of Goldman Sachs Group Inc.

Nomura climbed 5.3 percent to 258 yen at 2:28 p.m. in Tokyo ahead of first-quarter earnings scheduled for release at 3 p.m. The benchmark Topix Index (TPX) rose 0.9 percent.

Earnings Forecasts

Net income fell to 1.6 billion yen ($20 million) in the three months ended June 30 from 17.8 billion yen a year earlier, according to the median estimate of nine analysts surveyed by Bloomberg News via phone and e-mail.

Under Watanabe, the company posted a record 708 billion yen loss in the year ended March 2009, oversaw the exodus of former Lehman Brothers bankers, sold new shares twice to boost capital, and cut dividends. The stock’s more than 80 percent drop since he took the post in April 2008 compares with a 41 percent decline in the Topix.

Japanese regulators this year found that Nomura employees gave tips on share sales the company managed for Mizuho Financial Group Inc., Inpex Corp. and Tokyo Electric Power Co. to traders who short-sold the stocks before the offerings were announced in 2010.

Nomura said June 29 that it would cut top officials’ pay, force two managers to step down and suspend some operations after an internal probe. Staff appeared to have been “willing to do anything to meet sales targets,” lawyers hired by Nomura to examine the lapses said in a report last month.

Dropped Nomura

Government agencies including Development Bank of Japan Inc. dropped Nomura from debt sales in the wake of the insider- trading probe. The state-owned venture said it instead assigned Mitsubishi UFJ Morgan Stanley Securities Co. to lead an offering because it wanted to avoid “any disruption.”

Japan’s Securities and Exchange Surveillance Commission is continuing to inspect Nomura. As part of efforts to crack down on insider trading, the regulator this month asked Nomura, Goldman Sachs and 10 other brokerages to review how they handle confidential information. Watanabe had told reporters in June that he wasn’t sure whether there were additional leaks.

Daiwa Securities Group Inc. (8601), Nomura’s biggest domestic rival, may cut the salary of CEO Takashi Hibino and other executives following an internal probe into possible employee leaks about a Nippon Sheet Glass Co. share offering in 2010, the Mainichi newspaper reported today, without citing anyone.

Diamond, Dimon

Scandals at banks worldwide are forcing some top executives to step down and tainting the image of others. Robert Diamond resigned as CEO of Barclays Plc (BARC) on July 3 after regulators fined the lender a record 290 million pounds ($450 million) for rigging global interest rates. JPMorgan Chase & Co. CEO Jamie Dimon was grilled by U.S. lawmakers after the Wall Street firm disclosed trading losses that have spiraled to $5.8 billion.

Watanabe faced flak from shareholders at their annual meeting last month. His approval rate among shareholders fell to 63.6 percent, the lowest among 13 executives and down from 92 percent a year earlier, according to a regulatory filing.

He joined Nomura in 1975 and held managing positions until becoming CEO in April 2008, according to the firm’s website. He took the role after predecessor Nobuyuki Koga failed to boost profit and his attempt to expand in the U.S. backfired when the subprime mortgage market collapsed.

Scandal History

Scandals have forced the resignation of Nomura leaders in the past. President Hideo Sakamaki stepped down in 1997 after the company admitted paying bribes to corporate extortionists, known as sokaiya. In 1991, President Yoshihisa Tabuchi resigned after the bank was found to have compensated clients for losses.

One of Watanabe’s first tasks as CEO was to apologize for information leaks by an employee in the mergers and acquisitions department and pledge to prevent further breaches.

Nomura purchased Lehman’s European operations for just $2 and the Asian unit for $225 million in 2008 in a drive to compete with Wall Street banks weakened by the financial crisis.

The acquisition was a “once-in-a-generation opportunity,” Watanabe said at the time. The deal has yet to pay off, with the company continuing to lose money in Asia and Europe and former Lehman executives leaving the firm, including Jesse Bhattal, who quit as Nomura’s wholesale banking chief in January.

Moody’s Investors Service cut Nomura’s credit rating to the lowest investment grade in March, citing questions over the profitability of the company’s global capital markets operations. Watanabe eliminated 1,300 jobs worldwide in the six months ended March as part of a $1.2 billion cost-cutting program.

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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Nomura Holdings CEO Kenichi Watanabe

Kiyoshi Ota/Bloomberg

Nomura Holdings Inc. President and Chief Executive Officer Kenichi Watanabe.

Nomura Holdings Inc. President and Chief Executive Officer Kenichi Watanabe. Photographer: Kiyoshi Ota/Bloomberg