Nomura CEO resigns in wake of insider trading scandal

Nomura CEO, Kenichi Watanabe (L), and Nomura Securities president Koji Nagai bow their heads to apologise at the company's headquarters in Tokyo last month

Reeling from an insider trading scandal, Nomura Holdings yesterday announced the resignation of Kenichi Watanabe as the chief executive officer of Japan’s top brokerage.

The troubles at Nomura, which bought Lehman Brothers’ Asian and European operations in 2008, have come to light at a time when the financial industry is already facing a difficult business environment, from the eurozone debt crisis to global regulatory tightening. Similarly, in Europe, Bob Diamond resigned as Barclays’s chief executive earlier this month amid a Libor rigging scandal at the UK bank.

Nomura announced the exit of Watanabe, as well as Takumi Shibata, the chief operating officer, after the close of Tokyo trading yesterday.

Koji Nagai will take over from Watanabe as the group CEO, effective August 1, concurrently serving as the president of Nomura Securities. Atsushi Yoshikawa, the current regional CEO of the Americas, will take over from Shibata as the group COO and the CEO of the wholesale division.

Investors welcomed the media reports, which came before the official announcement of the management change. Nomura’ stock ended yesterday’s trading up 5.7% at ¥259 in Tokyo, having lost more than 30% since March when the first case of information leaks emerged.

“I have taken the series of incidents very seriously,” Watanabe told a press conference yesterday.

“With the new management team, I would like to bring about profound changes in and rebuild Nomura for its next progress,” said Nagai, who joined Nomura Securities in 1981.

Last month, Nomura confirmed that employees of Nomura Securities were sources of information regarding the share offerings in 2010 by oil and gas exploration company Inpex, Mizuho Financial Group and Tokyo Electric Power Company. All cases involved institutional equity sales employees at Nomura providing inside information to their clients.

Nomura said in a statement on June 29 that “we sincerely apologise for causing a loss of confidence in this country’s securities markets”, and that it will cut 50% of the monthly salary for the CEO and the COO for six months and five months, respectively.

A committee of external attorneys commissioned by Nomura to conduct an investigation on the insider cases has found problems among equity sales employees such as being over-zealous in the drive for profits and the transmission of quick tips to clients, according to the June 29 report.

“The matter hereinbefore pointed out as problems of sales structure, business structure and compliance of Nomura Securities are serious systemic defects that would erode confidence in Nomura Securities as a securities company,” the report state.

“Should these systemic defects be left unattended, this would clearly lead to serious adverse impacts on the fairness and reliability of the capital markets, and therefore, drastic and thorough rebuilding is needed without delay.”

Watanabe and Shibata were appointed as the CEO and the COO, respectively, in the spring of 2008. Later that year, Nomura bought Lehman Brothers’ operations in Asia-Pacific and its European and Middle Eastern investment banking and equities businesses, seeking to expand its presence abroad.

The management announcement followed Nomura’s earnings report yesterday. It booked an 89% decline in net income attributable to shareholders from a year earlier at ¥1.9 billion ($24 million). While its retail and asset management businesses showed a resilient performance, equities net revenue was hurt by muted trading volumes in Asia, including Japan, coupled with a dearth of primary deals, the company said in an earnings statement.

“We intend to restore the confidence that we have lost in the capital markets by thorough implementation of the improvement measures and to continuously reinforce our state of readiness through such measures as continuous voluntary inspection and investigations,” Nomura said separately.

The improvement measures include extending the retention period for call recordings of the departments in charge of institutional equity sales from two weeks to two years.