Nomura Holdings Inc. (8604), Japan’s biggest brokerage, was dropped as a lead underwriter for state-owned Development Bank of Japan Inc.’s bond sale this month because of its involvement in leaking insider information.
Nomura was replaced by Mitsubishi UFJ Morgan Stanley (MS:US) Securities Co. on the deal, according to a faxed statement from Mizuho Securities Co. today. DBJ, which had said in May that it had hired Tokyo-based Nomura as well as Daiwa Securities Group Inc. (8601) and Mizuho Financial Group Inc. (8411), today said it made the change to avoid “any disruption” to the offering.
The lost mandate may increase pressure on Nomura Chief Executive Officer Kenichi Watanabe to take more steps to restore clients’ confidence after employees gave out information ahead of transactions managed by the bank in 2010. Nomura last week said it will cut top executives’ pay and suspend some operations amid a government crackdown on insider trading.
“Nomura and the others that leaked information will see more suspensions for trading and underwriting from Japanese companies and overseas pension funds, which have stricter compliance rules,” said Fumiyuki Nakanishi, an equity strategist at SMBC Friend Securities Co. in Tokyo. “Cutting the CEO’s pay isn’t enough, that’s what market participants think.”
Keiko Sugai, a Tokyo-based spokeswoman for Nomura, declined to comment. DBJ hasn’t decided how much to raise from selling the three- and five-year bonds, Daisuke Inaba, a Tokyo-based spokesman for DBJ, said by telephone today.
Financial Services Minister Tadahiro Matsushita has called on 12 local brokerages to review how they handle confidential information, he said at a press conference today, adding that the measure is a response to leaks by a “major” brokerage.
Regulators are yet to complete their inspection of Nomura after finding that its staff gave tips on equity offerings by Inpex Corp., Mizuho Financial and Tokyo Electric Power Co. The brokerage concluded an internal investigation on June 29, and said it had found that some staff appeared to be “willing to do anything to meet sales targets,” according to a report it issued last week.
While Nomura is now “half way toward fixing” the breaches and is making progress on addressing short comings in its compliance, the company was initially slow to react to the regulator’s inspection, the minister said.
Nomura shares rose 0.7 percent to 298 yen at the 3 p.m. close of Tokyo Stock Exchange trading. The equity benchmark Topix Index gained 1 percent.
“We’ve decided to drop Nomura in order to move ahead with our bond issuance without any disruption,” DBJ’s Inaba said. “We need to avoid a situation where investors hesitate to buy our bonds just because a brokerage, which admitted to having internal control issues and conducted an investigation, helps manage the transaction.”
Regulators have also investigated firms including the local brokerage units of Sumitomo Mitsui Financial Group Inc. and JPMorgan Chase & Co. The Topix Index has dropped 9.5 percent since March 21, when the Securities and Exchange Surveillance Commission began announcing that underwriters had been found to have leaked information before stock offerings.
Daiwa is also subject to the government probe, two people with knowledge of the situation said last week. An employee at Japan’s second biggest brokerage provided confidential information on Nippon Sheet Glass Co.’s 2010 public share offering to a hedge fund, the people said, asking not to be identified before a public announcement.
The SESC on June 29 recommended that Japan Advisory Ltd., a hedge fund advisory firm, pay a fine of 375,183 yen ($4,700) for trades related to Nippon Sheet’s sale. Daiwa, an underwriter for the offering, will start an internal probe into the Japan Advisory trades and strengthen its controls, the brokerage said in a statement to the exchange that day.
Daiwa yesterday was dropped from a seven- and 10-year bond sale being conducted by Kawasaki Heavy Industries Ltd., according to a statement by Mizuho, which is now managing the transport equipment maker’s sale.
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