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Wednesday, 23 July 2014

P&M: Nomura CEO Watanabe to resign over trading leaks

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(Reuters) Nomura Holdings CEO Kenichi Watanabe and top lieutenant Takumi Shibata have resigned to take responsibility for leaks of insider information to the clients of its brokerage unit, according to people with knowledge of the management shake-up.

Source: Reuters/Yuriko Nakao

Nomura Holdings Inc Chief Executive Kenichi Watanabe is surrounded by reporters after a news conference in Tokyo, June 29, 2012.

The resignations of Watanabe and Shibata, Nomura’s COO, were approved at a board meeting today, the sources said.

The management shake-up comes a month after the investment bank cut pay for both of its top executives in response to the third insider trading scandal since Watanabe took the helm four years ago. Nomura declined comment.

Many inside Nomura had expected Watanabe, 59, to resign since it emerged this spring that the bank’s leadership was at loggerheads with Japan’s financial regulators, The regulators accused Nomura of being slow to respond to an ongoing investigation into insider-trading practices that had grown rampant in the Tokyo market.

However, the departure of Shibata throws open the succession to the CEO post. Possible successors to Watanabe include Koji Nagai, the head of Nomura’s securities unit, and Atsushi Yoshikawa, who heads the investment bank’s US operations.

Together Watanabe and Shibata had overseen Nomura’s troubled 2008 attempt to absorb the Asian and European assets of Lehman brothers and their resignations appeared to mark the end of an era of ambitious plans for global expansion at Japan’s top brokerage.

Nomura, due to report results today, has confirmed it was the source of leaks on planned share offerings by energy firm Inpex, Mizuho Financial Group and Tokyo Electric Power in 2010.

In all three cases, employees in its institutional sales department provided the tip-offs.

A panel of attorneys Nomura brought in to investigate the insider-trading cases said it found equity sales staff would regularly pump colleagues for inside information about upcoming stock offerings and then share tips with investors.

“When you look at their history, the number of scandals, this was the last straw,” said Jim Sinegal, an analyst with Morningstar research house.

Nomura, Japan’s largest brokerage, is awaiting possible sanctions from Japan’s Financial Services Agency, but the scandal has already cost it clients.

Some asset managers have stopped trading with the firm to meet their own compliance rules and it has lost underwriting business, including being left off the government’s sale of US$6bn worth of Japan Tobacco shares.

Shares of Nomura have almost halved in value since the first insider-trading case emerged in March. That compares with a 12% fall in the Japanese securities subindex in the same period.

The bank is expected to report that it roughly broke even in the latest quarter, but much more interest is likely to be in its future prospects in the wake of the scandal.

Watanabe joined Nomura in 1975 and took over as CEO four years ago, carving out a reputation for making key decisions on his own.

The purchase of Lehman assets in Asia and Europe – the latter for just two dollars – marked Nomura’s emergence as a world player in investment banking.

Nomura was the first Japanese securities company to establish an overseas office 81 years ago. Before acquiring Lehman, it had expanded to 30 countries, but still generated more than 90% of its revenue in Japan.

(By Emi Emoto and Nathan Layne. Additional reporting by Jochelle Mendonca; Writing by Rodney Joyce in Bangalore and Kevin Krolicki in Tokyo; Editing by Sriraj Kalluvila and Alex Richardson)

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