Goldman Joins JPMorgan in Promising Better Japan Controls

Goldman Sachs Joins JPMorgan in Promising Better Japan Controls
Nomura and Daiwa also submitted reports pledging to improve how they manage corporate information, as did Bank of America Corp.’s Merrill Lynch, UBS AG and Deutsche Bank AG. Photographer: Kiyoshi Ota/Bloomberg

Goldman Sachs Group Inc. and JPMorgan Chase & Co. were among banks that pledged to improve how they guard client information in Japan amid an insider trading scandal that toppled Nomura Holdings Inc.’s top two executives.

Goldman Sachs plans to train employees on ethics from November through February, and last month began programs on maintaining confidentiality, the New York-based bank said in a statement on its website yesterday. JPMorgan plans to increase compliance staff in Japan and boost monitoring of communication between employees to avoid leaks, it said in a statement.

The securities firms are trying to curb the fallout after the financial watchdog’s investigation arm concluded that staff at three firms including Nomura leaked information ahead of clients’ share sales in 2010, eroding their credibility. The Financial Services Agency last month asked 12 investment banks to report on how they manage the data.

“You can’t restore confidence overnight,” said Takao Saga, a professor at Waseda University in Tokyo and commissioner at the Japan Securities Research Institute. “Whether training or monitoring will work remains to be seen, as employees have been leaking inside information knowing that they may be breaching rules.”

Nomura and Daiwa also submitted reports pledging to improve how they manage corporate information, as did Bank of America Corp.’s Merrill Lynch, UBS AG and Deutsche Bank AG. The securities watchdog had concluded that staff at Daiwa and JPMorgan also tipped traders ahead of deals.

Dismissal Risk

Goldman Sachs is telling staff they may be fired if they leak inside information, Hiroko Matsumoto, a Tokyo-based spokeswoman, said yesterday. The Wall Street firm employed about 850 staff at its Japanese brokerage unit as of March 31.

“Getting employees to understand that rule breaches mean they will lose jobs or end their careers will have an important influence,” Saga said.

Japan’s FSA ordered Nomura on Aug. 3 to improve its business after it failed to prevent staff from providing tips to traders on at least three share sales in 2010. The scandal led to Koji Nagai replacing Kenichi Watanabe as chief executive officer on Aug. 1, a month after the firm released a report revealing that equity sales staff appeared to be “willing to do anything” to meet revenue targets. Atsushi Yoshikawa replaced Takumi Shibata as chief operating officer.

Brokerages Fall

The 19-stock Topix Securities and Commodity Futures Index rose 1.2 percent at 10 a.m. in Tokyo. The gauge has fallen 25 percent since the first case of leaks was revealed on March 21, more than the benchmark Topix Index’s 12 percent drop.

Being embroiled in the country’s information-leaking cases has also led to lost business as companies and government agencies distance themselves from tainted firms. Nomura was removed from a lead role Japan Airlines Co.’s $8.5 billion initial public offering, people with knowledge of the situation said on July 18. It also lost its rank as Japan’s No. 1 bond underwriter last month as issuers dropped the bank.

Daiwa also lost at least one bond deal, when Kawasaki Heavy Industries Ltd. excluded it from managing a sale on July 2.

Mitsubishi UFJ Morgan Stanley Securities Co., a Tokyo-based brokerage venture between Mitsubishi UFJ Financial Group Inc. and Morgan Stanley, said yesterday it also plans to improve compliance measures as part of the FSA review. The brokerage will tighten oversight of costs related to entertaining clients and is considering issuing recordable mobile phones to some staff in its sales and research divisions, it said yesterday in a statement on its website.

Pay Cuts

Mizuho Financial Group Inc., Japan’s third-biggest bank by market value, said it will strengthen oversight of information between departments at its investment banking unit and more closely monitor e-mails.

Sumitomo Mitsui Financial Group Inc.’s SMBC Nikko Securities Inc. unit will increase the liability of employees who breach compliance rules, it said yesterday on its website. SMBC Nikko President Eiji Watanabe and Chairman Shigenobu Aikyo will have their pay cut by 30 percent for four months, the company said, following the June arrest of a former executive on suspicion of aiding insider trading.

Citigroup Inc.’s local brokerage unit said it plans to improve information safeguards by clarifying policies on how it manages corporate information.

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