Major business review at Nomura as execs walk
NOMURA’S INSIDER TRADING disgrace has led not just to a monumental management shake-up but it could also go a lot further as there was talk last week that Bank of Tokyo-Mitsubishi UFJ might be priming a takeover bid mainly to gain control of Nomura’s fabled retail distribution network, at a time when Nomura’s stock price is around 38% off its yearly highs.
If a bid were to materialise, it’s likely that BTMU would shutter Nomura’s wholesale division and rely for institutional business on existing arrangements, including its Mitsubishi UFJ Morgan Stanley Securities joint venture. This would be an ignominious end to Japan’s pre-eminent investment bank and broker-dealer, whose recently-initiated global build-out won’t have lasted much longer than the insider trading probe itself.
And of course, the timing couldn’t have been worse for the investment banking industry, coming on the heels of the Libor fixing investigation at Barclays and others. It provides evidence of yet another banking culture beset by corrupt behaviour.
In the circumstances, it was perfectly right that the scandal cost group CEO Kenichi Watanabe his job, along with that of Takumi Shibata, group COO, chairman and CEO of the wholesale vision, and architect of the takeover of the Lehman businesses and the international expansion strategy.
Five other senior executives are also leaving the firm. In a communications blunder, the press release announcing their departure implied they had been all implicated in the scandal and had been fired, although that is not what happened.
Nonetheless, Hitoshi Tada, chairman of Nomura Securities; Yugo Ishida, president of Nomura Asset Management; Yoshinori Go, vice-chairman of Nomura Asia and head of the ASEAN office; Takaaki Naito, CEO of the firm’s India office since March but previously head of asset finance; and Philip Lynch, president and CEO of Nomura in Asia, are all leaving at the end of July.
Lynch, an ex-Lehman banker, had been tipped as a potential candidate to replace then-wholesale division CEO Jesse Bhattal, who was fired at the beginning of the year along with global markets head Tarun Jotwani.
WATANABE HAS BEEN replaced as group CEO by Koji Nagai, president of Nomura Securities. Atsushi Yoshikawa, regional CEO of the Americas, will take over from Shibata as group COO and CEO of the wholesale division. In a back to the future scenario, Lynch has been replaced as Asia CEO by the man he replaced in the role in early 2010, Minoru Shinohara, who at the time went back to Tokyo to run Nomura’s global ECM and DCM businesses. As the most senior executive directly involved with the firm’s new-issue businesses, the highly regarded Shinohara might count himself lucky to still be in a job.
It provides evidence of yet another banking culture beset by corrupt behaviour
What I find so shocking is that market participants glibly say that passing inside information in Japan’s capital markets is common practice. SMBC Nikko was rapped over the knuckles with a business improvement order after board members were found to have passed inside information around parent Sumitomo Mitsui Financial Group’s ¥953bn equity offering in January 2009; while JP Morgan is being investigated over the passing to a hedge fund of non-public information about Nippon Sheet Glass’s ¥37bn equity offering, on which it was joint global co-ordinator.
The Nomura investigation uncovered a culture of sleaze at the heart of the firm’s equity deal-making engine. The syndicate desk passed inside information about follow-on stock offerings in Tepco, Inpex and Mizuho to the institutional sales desk, which then passed them to clients.
Nomura not only pocketed the underwriting fees on the deals; it also picked up the stock borrow when clients it had illegally tipped off shorted the stock and it earned the brokerage commission when those same clients bought shares to settle the trades. Nomura has admitted it’s highly possible that there were more cases than the three already identified.
THE IMPACT OF the scandal has already been felt: Nomura was kicked off the government’s US$6bn Japan Tobacco share sale as well as debt deals by Japan Finance Housing Agency and Saitama Resona Bank.
The investigation has been ongoing for almost two years – not too long after Nomura acquired Lehman Brothers’ businesses in Europe and Asia and set out on a path to stake a bigger claim of the international investment banking and global markets wallet.
I’d already said back in January in a blog entitled: “Nomura should ditch its global ambitions” that this initiative was flagging, that the firm was struggling to make headway and that it should scale down and sequence its ambitions or stick to its home market. That blog caused a major blow-up at senior management levels of the firm in Tokyo. But with this fiasco, it appears that that’s what they may well end up doing.
Where the scandal leaves Nomura is anyone’s guess. At Thursday’s press conference, newly-appointed CEO Nagai said rather ominously: “We will make bold choices about what we focus on” and spoke of a new global strategy, saying the firm would not simply stick to how it did things in the past.
On the analyst call, Yoshikawa said, in equally ominous fashion: “We will review our strategy for the wholesale business operations.” The wholesale division is already in the midst of a severe cost-cutting drive. We’ll have to wait and see what the two new top executives were referring to, but I have a feeling that we’re nowhere near the end of this saga.
(This is an updated version of the Keith Mullin commentary: “Takeover talk surrounds Nomura as senior execs walk”)