Nomura, Dkb Seen Escaping Damage

A racketeer payoff scandal involving Nomura Securities and Dai-Ichi Kangyo Bank Ltd (DKB) is likely to deal a stiffer blow to the top brokerages bottom line than to profits at the prestigious bank.

But industry analysts at present expect both giant institutions to survive the affair intact, albeit tarnished. Prosecutors this week formally charged Nomura Securities CoLtd with violating the securities law by illegally compensating a firm run by a corporate extortionists younger brother.

They also indicted two former Nomura directors on suspicion of violating both the securities law and the Commercial Code, and arrested former Nomura president Hideo Sakamaki in connection with the case.

 

Market sources had speculated that the finance ministry could decide to suspend part of Nomuras business for up to six months.

However, more recent talk suggests a two-month suspension of all business at headquarters and branches is more likely.

Under the securities law, administrative penalties will be imposed after Japans securities watchdog, the Securities and

Exchange Surveillance Commission (SESC), makes recommendations to the finance minister.

It is unlikely that the ministry would suspend Nomuras dealing business for the maximum six months set under the law, said one industry analyst.

If the authorities did so, it would mean a death sentence for Nomura. I dont think the ministry wants to expel Nomura from the financial market, because its the only domestic brokerage which can really compete with foreign rivals.

Whether Nomura faces tough sanctions in the United States is unclear. A Nomura spokesman said on Thursday that the U.S. Securities and Exchange Commission (SEC) was conducting a routine investigation, unrelated to the scandal, of its U.S. subsidiary, Nomura Securities International.

But the spokesman said Nomura had not been told by the SEC that the U.S. unit would lose its broking and dealing licences.

Nomura, at any rate looks strong enough to survive whatever Japanese authorities mete out, industry sources said.

The brokerage could last up to five and a half years without any income, given its strong capital and reserve base, one industry source said.

DKB, meanwhile, is also suffering a huge embarrassment and potential damage to profits from its role in the affair.

Prosecutors on Thursday arrested four DKB officials on suspicion of extending uncollateralised loans to Ryuichi Koike, the sokaiya racketeer at the core of the scandal.

Funds provided by the bank were used by Koike to buy big stakes in Nomura and other Big Four brokerages.

DKB will see a negative impact from the scandal this business year, said Yushiro Ikuyo, first vice president at Smith Barney International. Individuals will refrain from putting their money in the bank and may choose other banks as the source for housing loans.

Finance Minister Hiroshi Mitsuzuka told reporters on Friday that the arrests were grave and beyond words and said that his ministry would take strict action against the bank, taking into account the ongoing investigation by prosecutors.

Like Nomura, DKB is now seeing some big clients defect.

Japans Postal Life Insurance System (Kampo) and Postal Savings System, both government-run, have suspended dealings with the bank, a spokesman for the Posts and Telecommunications Ministry said on Friday.

Individual deposits outstanding at DKB fell by 150 billion yen ($1.29 billion) at the end of May from a month earlier, the Yomiuri Shimbun mass daily said on Friday.

Still, analysts said damage to DKBs overall business would be limited as the Finance Ministry was highly unlikely to suspend DKBs core banking business.

While the impact of the scandal on DKBs business is beginning to surface, it seems to me that it remains limited, taking account of its huge asset size, another analyst said.

DKBs assets totalled 53 trillion yen ($456 billion) at the end of March. The bank said last month that it expected a parent current profit of 100 billion yen ($862 million) in the year to next March after posting a 349.90 billion yen ($3.01 billion) loss last year due to massive problem loan write-offs.

($1 =116 yen)