Nomura Tumbles as Prosecutors Seek Monte Paschi Assets

Nomura Falls as Italian Prosecutors Seek Monte Paschi Assets
Pedestrians walk past the Nomura Holdings Inc. headquarters in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

Nomura Holdings Inc. shares fell the most in two weeks after Italian prosecutors said they aim to seize 1.8 billion euros ($2.4 billion) of its assets as part of a probe into Banca Monte dei Paschi di Siena SpA.

Japan’s biggest brokerage slid 2.3 percent, the steepest decline since April 1, to 754 yen at the close on the Tokyo Stock Exchange. The Nikkei 225 Stock Average rose 1.2 percent.

The seizures are linked to allegations of fraud and usury related to Monte Paschi’s use of derivatives to hide losses, prosecutors in Siena, where the Italian bank is based, said in a statement yesterday. Monte Paschi has claimed Nomura colluded with its former managers to devise one of two derivatives in 2008 and 2009 that hid total losses of much as 557 million euros. Nomura reaped at least 88 million euros from the transaction, dubbed Alexandria, according to the Italian lender.

“There is a sense of uncertainty over Nomura as it’s unclear what’s going on in Italy and information is limited,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co. in Tokyo. “We don’t know if this is an individual issue or institutional issue and investors may find it difficult to buy the shares until there is some clarity.”

Wrongdoing Denied

Sadeq Sayeed, Nomura’s former European head, and Raffaele Ricci, a managing director in fixed-income sales, are being probed for colluding to obstruct regulators and making false statements, prosecutors said. They are also sequestering 14.4 million euros of assets from three former Monte Paschi managers already under investigation, including Chairman Giuseppe Mussari, General Manager Antonio Vigni and finance chief Gianluca Baldassarri.

Nomura, which isn’t under investigation itself, said yesterday that the Tokyo-based bank will “vigorously” contest any suggestion of wrongdoing in the case. Sayeed, 59, said he denied any allegation of wrongdoing against him. Ricci didn’t return a call and an e-mail seeking comment.

The prosecutor’s order to seize assets must be ratified by a judge in Siena within 10 days, an Italian police official said yesterday.

Italian Bet

As part of the deal with Nomura, Monte Paschi bought Italian government bonds using a loan from the Japanese bank. It swapped the fixed-rate interest payments on the bonds with a floating rate and guaranteed the credit risk on the bonds, effectively making a bet on the future value of Italian government bonds.

As those securities tumbled during Europe’s sovereign debt crisis, Monte Paschi was forced to post additional margin at a cost of 173 million euros, the bank said.

About 1.7 billion euros of the assets to be seized is margin pledged by Monte Paschi to Nomura, prosecutors said. The Siena prosecutor has frozen payments on the contract, said a person with direct knowledge of the probe, who asked not to be identified because the investigation is continuing.

Nomura said in a statement that no assets have been seized. Because Monte Paschi deposits its margin in an account used by Nomura in Germany, the Bank of Italy may ask the Bundesbank to seize the contents of that account, according to two people with knowledge of the investigation who asked not to be identified. They declined to give details of the German central bank’s response. Officials at the Bundesbank declined to comment.

Monte Paschi has said Nomura’s transaction, and a similar derivative designed by Frankfurt-based Deutsche Bank AG, “should never have been put together.” The two firms “were perfectly aware of the context, the illicit objectives” of Monte Paschi’s former executives, the company said in a report released March 29. Lawyers for the three former Monte Paschi executives didn’t immediately answer calls to their mobile phones.

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