Nomura woes deepen on spoofing case, attempted murder arrest

Scandals are mounting at Nomura Holdings Inc., threatening to derail a turnaround plan at Japan’s biggest brokerage just as it’s beginning to bear fruit.

Nomura said on Thursday Chief Executive Officer Kentaro Okuda and other top managers will take a pay cut after the firm admitted an employee manipulated the bond market, prompting several firms to stop trading with the brokerage. Less than an hour later, a local news agency reported that a former Nomura worker was arrested on suspicion of robbery and attempted murder of elderly clients.

Finance Minister Katsunobu Kato called both incidents “extremely regrettable” at a regular news briefing on Friday.

Scandals Overshadow Profits

The drumbeat of bad news overshadowed financial results on Friday, when Nomura reported quarterly profit that beat estimates, more than doubling from a year earlier to ¥98.4 billion ($645 million). Revenue from its key areas of wealth management, trading and investment banking all rose. It was the third straight quarter of profit growth, the longest streak under Okuda.

Chief Financial Officer Takumi Kitamura expressed regret for the market manipulation case as well as the former employee’s arrest. He said it was too early to measure the potential impact of the arrest on its wealth business, while adding that the effect on profits from the bond trading breach would probably be limited.

“It’s about sentiment,” said Hideyasu Ban, a Bloomberg Intelligence analyst, adding the brokerage will need to allay concerns among clients about the former employee’s arrest. “Their reputation is at risk.”

Shares of Nomura fell 2.7% on Friday at the close of trading in Tokyo. The benchmark Topix index slid 1.9%.

Nomura's Image Takes Hit

The scandals reinforce Nomura’s image as a firm prone to missteps, including data leaks and a multi-billion dollar loss from the collapse of Archegos Capital Management.

Okuda has sought to move past these setbacks since he took the top job more than four years ago. Nomura has ridden a wave of deals and trading as Japan’s stock and bond markets rebound from years of slumber. Okuda has set a goal to double pretax earnings by 2031.

Instead, the bank is in damage control mode once again after a bizarre few weeks.

The investigative arm of Japan’s Financial Services Agency reported in September that a Nomura employee placed misleading orders in the government bond futures market in 2021. The trader profited by placing large orders without intending to buy or sell all of them, in a practice the watchdog called layering, which is a type of spoofing. The FSA imposed a ¥21.8 million fine against the company on Thursday. The trader is no longer with the firm, people familiar with the matter told Bloomberg News.

The incident has prompted clients to take their bond trading and underwriting business elsewhere, hurting Nomura just as Japan re-emerges as a key growth area.

At least 10 institutional investors have temporarily suspended some business activities with Nomura because of the breach, according to people familiar with the matter. Additionally, other clients have taken the company off underwriting debt deals. That’s lowered Nomura’s ranking in the corporate debt market, where it dropped to fifth place in October from No. 3 the previous month, according to data compiled by Bloomberg. The broker also saw its primary-dealer “special entitlements” at government debt auctions suspended for about a month.

Damage Control, But No Relief

“We take this matter very seriously,” the company said in a statement Thursday, as it apologized to clients and concerned parties. “We will continue to further enhance our compliance framework and internal controls to prevent similar incidents occurring in the future and to regain trust.”

In response, Okuda agreed to return 20% of his pay for two months, while Deputy President Yutaka Nakajima and several other executives at the domestic securities unit will take similar or smaller cuts, according to a statement.

After announcing the pay cuts and fines early Thursday, things unraveled further for Nomura when Kyodo reported that a former employee was arrested on suspicion of robbery and attempted murder of two clients. The 29-year-old man worked for Nomura Securities Co. when the alleged crime took place in Hiroshima in July, Kyodo reported, citing an unidentified person involved in the investigation.

He’s suspected of drugging a customer and his spouse, stealing about ¥26 million in cash from their home and setting it on fire, according to the report. The couple in their 80s escaped safely, it said.

A spokesperson for Nomura Holdings confirmed that the person is a former employee who was dismissed for disciplinary reasons, without saying when he worked there.

“It is extremely regrettable that a former employee of ours has been arrested,” the spokesperson said.

Disclaimer: This story has been published from a wire agency feed without modifications to the text.