Scandals are accumulating at Nomura Holdings Inc., jeopardizing the progress of a turnaround plan at Japan’s largest brokerage as it begins to show signs of success.
On Thursday, Chief Executive Officer Kentaro Okuda and other senior executives agreed to a pay reduction following the brokerage’s admission of an employee’s involvement in bond market manipulation, leading several firms to halt trading with Nomura. Subsequently, a local news agency reported the arrest of a former Nomura employee on suspicion of robbery and attempted murder of elderly clients.
These recent issues may overshadow the firm’s financial results expected on Friday, where Nomura is predicted to post a year-on-year profit increase for the third consecutive quarter, as Okuda’s strategic overhaul gains momentum. This marks the longest growth period in nearly ten years.
Bloomberg Intelligence analyst Hideyasu Ban noted, “It’s about sentiment,” emphasizing the need for the brokerage to reassure clients regarding the former employee’s arrest due to reputational risk.
These scandals have emphasized Nomura’s susceptibility to errors, reminiscent of past data breaches and significant losses from the collapse of Archegos Capital Management.
Nomura’s shares opened lower on Friday in Tokyo trading, tumbling up to 2.7%, while the broader Topix index dropped by as much as 1.7%.
Since assuming leadership over four years ago, Okuda has faced numerous challenges. Despite these, Nomura has benefited from a wave of deals and trading as Japan’s stock and bond markets have rebounded. Okuda aims to double pretax earnings by 2031.
Currently, the company is engaged in damage control mode, following a series of unfortunate events. In September, Japan’s Financial Services Agency revealed that a Nomura employee placed deceptive orders in the government bond futures market in 2021. This tactic, known as layering, involved placing large orders without the intent to execute, allowing the trader to profit. The FSA imposed a ¥21.8 million ($144,000) fine on the firm on Thursday. The involved trader is no longer employed by Nomura, according to sources familiar with the situation.
As a result, several clients have shifted their bond trading and underwriting activities to other firms, impacting Nomura’s operations as Japan re-emerges as a growth hub. At least 10 institutional investors have paused certain business deals with Nomura due to the breach, sources indicated. Other clients have also removed the firm from underwriting debt deals, causing Nomura to fall to fifth place in the corporate debt market rankings for October, from third the previous month, based on Bloomberg data. Additionally, Nomura lost its “special entitlements” as a primary dealer in government debt auctions for about a month.
In a statement on Thursday, Nomura expressed serious concern over the matter and apologized to clients and stakeholders, promising to enhance its compliance framework and internal controls to prevent future incidents and restore trust.
In response to the situation, Okuda committed to returning 20% of his salary for two months, while Deputy President Yutaka Nakajima and other executives in the domestic securities unit have also agreed to similar or smaller pay deductions, according to a company announcement.
Compounding the situation, reports from Kyodo indicated the arrest of a former Nomura employee on suspicion of robbery and attempted murder, after the firm announced the pay cuts and fines earlier that Thursday. The 29-year-old suspect, who worked for Nomura Securities Co., allegedly committed the crime in Hiroshima in July, according to an unnamed source linked to the investigation.
The suspect is accused of drugging a client and their spouse, stealing about ¥26 million in cash, and setting their home on fire. Fortunately, the couple, both in their 80s, escaped unharmed, the report stated.
A spokesperson for Nomura Holdings confirmed that the suspect is a former employee who was dismissed for disciplinary reasons, although no timeframe was disclosed. “It is extremely regrettable that a former employee of ours has been arrested,” the spokesperson commented.
