Nomura Holdings Inc. Chief Executive Officer Kenichi Watanabe and his top lieutenant resigned over an insider-trading scandal as the company indicated there may have been more information leaks than those identified by authorities.
Koji Nagai, president of Nomura’s domestic brokerage, will succeed Watanabe on Aug. 1, Japan’s biggest brokerage said in a statement in Tokyo today. Chief Operating Officer Takumi Shibata will be replaced by American unit chief Atsushi Yoshikawa.
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, both 59, oversaw the purchase of Lehman Brothers Holdings Inc.’s European and Asian assets, as well as 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,” Kouichi Niwa, a Tokyo-based analyst at SMBC Nikko Securities Inc., said before the announcement. “Still, what Nomura needs the most now is to retrieve market trust and boost earnings power.”
Nomura earlier today reported first-quarter profit tumbled 89 percent to 1.9 billion yen ($24.3 million) as investment banking fees and brokerage commissions fell.
Watanabe bowed in apology at a news conference at Nomura’s headquarters in Tokyo today. “I take this insider issue very seriously,” he said after being asked why he resigned.
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.
Aside from the previously announced leaks, “there are certain other cases in which there are high possibilities that corporate-related information were communicated by our employees to our clients,” Nomura said in a status report on its improvement measures today. “We intend to restore the confidence that we have lost in the capital markets.”
Nomura climbed 5.7 percent to close at 259 yen in Tokyo before the earnings and management changes were announced, while the benchmark Topix Index rose 1.2 percent. Profit for the three months ended June 30 beat the 1.6 billion yen median estimate of nine analysts Bloomberg News surveyed by phone and e-mail.
Nagai, 53, replaced Watanabe on April 1 as president of Nomura Securities Co. to reduce the CEO’s domestic role and revive operations abroad. Nagai had been deputy president of the domestic unit, where he spent his entire career since joining the company in 1981 after graduating from Chuo University.
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.
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.
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 into the information leaks. 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.
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.”
Nomura’s investment banking fees fell 25 percent in the three months ended June from a year earlier to 10.4 billion yen, the lowest in at least five quarters, today’s figures showed. Brokerage commissions slid 20 percent to 77.4 billion yen.
Credit-default swaps tied to Nomura Holdings’ debt were little changed from yesterday at 362 basis points at 6:30 p.m. in Tokyo, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. An increase in the swaps signals worsening perceptions of creditworthiness, while a decrease suggests the opposite.
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., 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.
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 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.
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.
Nomura posted a 12.1 billion yen pretax loss from overseas operations last quarter, the ninth in a row, it said today.
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 plan.