* CEO to step down after insider trading scandal
* Nomura says "high possibility" more insider trading cases
* Bank names Nomura Securities President Nagai as CEO
* Bank scrapes profit in fiscal first quarter
* Clients have cut business due to scandal
By Emi Emoto and Nathan Layne
TOKYO, July 26 Nomura Holdings Inc CEO
Kenichi Watanabe resigned on Thursday over a widening insider
trading scandal and will be replaced by company veteran Koji
Nagai, as Japan's top investment bank warned additional cases
could come to light.
The management shake-up was confirmed in a news conference
at the end of a dramatic day in Tokyo that also saw Watanabe's
top lieutenant, Takumi Shibata, resign over leaks of insider
information to clients of its securities unit in 2010.
Watanabe is the second global bank boss to resign this month
- Barclays chief Bob Diamond stood down over the Libor
rate-rigging scandal on July 3 - as the industry finds itself
under huge political and regulatory pressure.
The departure of Watanabe and Shibata, the architects of
Nomura's takeover of the Asian and European assets of Lehman
Brothers, raises questions about the future of the global
expansion strategy they pursued.
Nagai, a three-decade company veteran who took over as head
of the Nomura's domestic securities unit in April as part of a
management reshuffle, said he would map out a "new global
strategy". He said he had no intention of dropping Nomura's
ambition of being a global investment bank centred in Asia, but
suggested he may pursue further restructuring overseas.
"We will make bold choices of what we will focus on. We will
not simply stick to how we did things in the past," he said.
In an update on its own investigation into the scandal,
Nomura said there was a "high possibility" that it leaked inside
information on additional share offerings to clients beyond the
three cases already unearthed by Japanese regulators.
The resignations of Watanabe and Shibata, Nomura's chief
operating officer, and their replacement by Nagai and Atsushi
Yoshikawa, the head of its U.S. operations, would take effect on
Aug. 1, the bank said.
Nomura's shake-up comes a month after the bank cut pay for
both of its top executives in response to the third insider
trading scandal since Watanabe, who joined the bank in 1975,
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.
Investors reacted positively, bidding Nomura shares up
nearly 6 percent ahead of its fiscal first quarter earnings,
which saw the bank report a net profit of 1.89 billion yen
($24.2 million), against a profit of 17.7 billion yen in the
same period last year. The consensus of eight analysts was for a
profit of 500 million yen. Earnings were hit by slumping mutual
fund sales and stock trading commissions.
At the start of a news briefing on the results, CFO Junko
Nakagawa apologised for the scandal and promised to bolster
"I can't say that there is no impact on our earnings," she
said. "It is difficult at this stage to numerically estimate the
possible damage. All we want to do is make efforts to regain
Nagai joined Nomura in 1981 after graduating from the law
department of Chuo University, gaining experience in both retail
and corporate banking as he rose up the ranks.
AT LOGGERHEADS WITH REGULATORS
The resignation of Watanabe, 59, had been expected by many
inside Nomura since signs emerged 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 global investment banking sector has been battered in
recent months by falling trading and advisory income as clients
pull back from markets due to the euro zone crisis, and by
political calls for a change of culture after a string of
Watanabe and Shibata oversaw the 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.
That strategy was dealt a blow earlier this year with the
abrupt departure of Jasjit Bhattal, Lehman's former Asia Pacific
CEO who helped broker the deal.
Global rivals Goldman Sachs and Credit Suisse Group
twinned their quarterly reports with additional
restructuring, but CFO Nakagawa said Nomura had no plans for
additional cost cuts on top of the $1.2 billion savings drive
launched last year.
Moody's Investors Service cut its debt rating on Nomura to
one notch above speculative or "junk" grade in March, citing
concerns about the long-term profitability of its overseas
Nomura booked a pretax loss of 12.1 billion yen in the
latest quarter overseas, but that was about half the loss in the
previous quarter - suggesting the cost-cutting plan is starting
to bear some fruit.
The scandal that brought down the bank's leaders dates back
to 2010. Nomura has confirmed it was the source of leaks on
planned share offerings by energy firm Inpex, Mizuho
Financial Group and Tokyo Electric Power.
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.
Nomura 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 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 during the same period.
Scandals have forced Nomura to change executive leadership
twice since the collapse of Japan's asset bubble. In 1991,
then-President Yoshihisa Tabuchi resigned after the brokerage
admitted to compensating favoured clients for stock losses.
In 1997, President Hideo Sakamaki stepped down after the
bank was found to have channelled more than $3 million to a
gangster in order to keep him from raising trouble at its 1995
(Additional reporting by Mayumi Negishi and Jochelle Mendonca;
Writing by Kevin Krolicki in Tokyo and Alex Richardson in
Singapore; Editing by Dean Yates)