tokyo July 26, 2012, 10:18 IST
tokyo 07 26, 2012, 10:20 IST
Nomura Holdings Inc CEO Kenichi Watanabe and his top lieutenant, Takumi Shibata, will resign to take responsibility for leaks of insider information to clients of its brokerage unit, people with knowledge of the shake-up said.
The departure of the architects of Nomura's takeover of the Asian and European assets of Lehman Brothers throws open the succession at Japan's top investment bank and raises questions about the future of the global expansion strategy they pursued.
Nomura's 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.
"When you look at their history, the number of scandals, this was the last straw," said Jim Sinegal, an analyst with Morningstar research house.
The resignations by Watanabe and Shibata, Nomura's chief operating officer, were approved at a board meeting on Thursday morning, the sources said. Nomura declined to comment.
GRAPHIC on Nomura scandals http://r.reuters.com/hur29s
Investors reacted positively, bidding Nomura shares up around 5 percent ahead of its fiscal first quarter earnings report due after trading finishes on Thursday.
The resignation of Watanabe, 59, had been expected by many inside Nomura since signs emerged this spring that the bank's leadership was at loggerheads with Japan's financial regulators, which accused Nomura of being slow to respond to an investigation into insider trading practices that had grown rampant in the Tokyo market.
The departure of Shibata leaves no obvious successor for the CEO post. Possible successors include Koji Nagai, the head of Nomura's securities unit, and Atsushi Yoshikawa, who heads the investment bank's U.S. operations.
The turmoil inside Nomura comes as the industry globally finds itself under huge financial and regulatory pressure.
Investment banks have been hammered on one side by falling trading and advisory income as clients pull back from markets due to the euro zone debt crisis, and from the other by political calls from a change in their culture after a string of scandals, most recently over the fixing of interest rate benchmarks.
Watanabe and Shibata oversaw Nomura's troubled 2008 attempt to absorb assets of failed U.S. bank Lehman Brothers and a key question for their successors will be whether to follow their ambitious plans for worldwide expansion.
Global rivals Goldman Sachs and Credit Suisse Group twinned their quarterly reports with additional restructuring, putting a focus on whether Nomura too decides to top up a $1.2 billion cost-cutting drive launched last year.
The scandal that brought down the bank's leaders had already been weighing on its outlook.
Nomura has confirmed it was the source of leaks on planned share offerings by energy firm Inpex <1605.T>, Mizuho Financial Group <8411.T> and Tokyo Electric Power <9501.T> in 2010.
In all three cases, employees in its institutional sales department provided the tip-offs.
A panel of attorneys brought in by Nomura 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.
Watanabe's decision to step down was welcomed by Tsutomu Okubo, the lead director of a ruling Democratic Party of Japan committee that has been crafting stronger insider trading rules.
"I applaud Watanabe's resignation from the perspective that it is aimed at leading to a reform of the securities industry," Okubo told reporters. "As an industry leader I believe he showed great resolve in making that decision."
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 $6 billion worth of Japan Tobacco <2914.T> shares.
Shares of Nomura have fallen in value by more than a third since the first insider trading case emerged in March. That compares with a 10 percent fall in the Japanese securities sub-index <.IFINS.T> during 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's 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 percent of its revenues in Japan.