Nagai taking over as Nomura CEO signals global retreat

Clients, regulators need placating over information-leak scandal

by Takahiko Hyuga

Bloomberg

Nomura Holdings Inc.’s appointment of domestic brokerage head Koji Nagai as the new chief signals a retrenchment into its home market as Japan’s biggest investment bank reels from the insider-trading scandal and losses abroad.

Nagai, 53, will succeed Chief Executive Officer Kenichi Watanabe, 59, next Wednesday, Nomura said Thursday. Watanabe and Chief Operating Officer Takumi Shibata, architects of the 2008 purchase of Lehman Brothers Holdings Inc.’s assets, will step down to atone for instances of staff leaking information about clients’ share sales to traders.

The new CEO inherits the task of placating clients and regulators after the bank said Thursday that the leaks, which cost Nomura its top spot managing Japan bond sales, may have been more widespread than previously announced. The stock lost 83 percent during Watanabe’s tenure as foreign operations, built with the Lehman assets, posted losses for a ninth quarter.

Nagai’s appointment “will create the perception that Nomura is shifting to make the domestic business its main pillar,” said Yasuhide Yajima, chief economist at NLI Research Institute, pointing to the executive’s local experience. “The question remains whether reshuffling top management will be enough of a remedy to change the corporate culture.”

Shibata, 59, will be replaced by American unit chief Atsushi Yoshikawa, who said on a conference call with analysts Thursday that additional cost reductions are needed and the company may cut more jobs.

Nomura’s profit tumbled 89 percent to ¥1.9 billion in the three months that ended June 30 as investment banking fees and brokerage commissions fell, the company reported Thursday. It posted a ¥12.1 billion pretax loss from overseas operations.

Nagai replaced Watanabe on April 1 as president of Nomura Securities Co. to reduce the CEO’s domestic role. Nagai had been deputy president of the local unit, where he has spent his entire career since joining the company in 1981 after graduating from Chuo University.

He said at a briefing Thursday that Nomura will “regard Japan and Asia as the mother market, and we would like to be a global bank based in Asia.”

“The management change shows Nomura has reversed course and is becoming realistic about the need to focus on Japan and Asia to boost profitability, rather than losing money overseas to be a global player,” said Katsunori Tanaka, a Tokyo-based analyst at Goldman Sachs Group Inc. “Nomura couldn’t have changed its direction under the Watanabe-Shibata regime.”

Once the world’s biggest securities firm with a market value of $76 billion in 1987, 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 loss in the year that ended in March 2009, oversaw the exodus of former Lehman Brothers bankers, sold new shares twice to boost capital, and cut dividends.

Watanabe bowed in apology at a news conference at Nomura’s headquarters Thursday. “I take this insider issue very seriously,” he said after being asked why he resigned.

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.

“There are certain other cases in which there are high possibilities that corporate-related information was communicated by our employees to our clients,” Nomura said in a status report Thursday. “We intend to restore the confidence that we have lost in the capital markets.”

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.

Financial services minister Tadahiro Matsushita said Friday authorities plan to consider administrative action against Nomura based on the Financial Services Agency’s inspection and the company’s internal review.

“I have a high expectation that the company will restart as a reborn Nomura,” Matsushita said. “We are aware that Nomura revealed the fact that it may have leaked information on more cases. We will take action if we find operational problems through our investigation.”

As part of its crackdown, the regulator this month asked Nomura, Goldman Sachs Group Inc. and 10 other brokerages to probe how they handle confidential information.

The Democratic Party of Japan has completed proposals to tighten rules against leaks, including fines and criminal charges against brokerages and banks that release stock offering information.

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

Nomura leaders have quit over uproars 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, presumably favored ones, for losses.