Insider trading scandal tarnishes Nomura. CEO resigns.

Insider trading investigation at Japan's biggest investment bank topples CEO. Nomura plans reforms to prevent insider trading after admitting that employees leaked information to clients. 

Shizuo Kambayashi/AP
Nomura Holdings Ltd. CEO Kenichi Watanabe bows next to Nomura Securities Co. President Koji Nagai, center, and Senior Managing Director Shoichi Nagamatsu at the start of a press conference in Tokyo Thursday. Mr. Watanabe announced his resignation in the wake of an insider trading scandal that has tarnished the reputation of Japan Inc. and its biggest investment bank. Mr. Nagai will replace him Aug. 1.

Nomura CEO Kenichi Watanabe has resigned in the wake of an insider trading scandal that has tarnished the reputation of Japan Inc. and its biggest investment bank as regulators worldwide clamp down on unethical practices in the banking industry.

Watanabe announced his resignation at a press conference Thursday in Tokyo, ending his four year leadership of Nomura Holdings Ltd. Takumi Shibata, the chief operating officer, also resigned.

Watanabe, 59, will from Aug. 1 be replaced by Koji Nagai, the president of Nomura Securities Co., which is part of the Nomura banking empire and at the center of the insider scandal.

Japan's financial regulators are investigating Nomura Securities for leaking information to clients ahead of planned securities offerings by energy company Inpex, Mizuho Financial Group and Tokyo Electric Power Co. in 2010.

Nomura has admitted that some its employees were involved in leaking inside information and is taking steps to prevent recurrences.

"Our reputation has been badly damaged," said Nagai. "To try to restore trust is easily said, but to actually accomplish that is a huge undertaking. Rather than just change our approach, we need to fundamentally rebuild the company. All corporate employees need to be involved in this," he said.

The scandal at Nomura is the latest blow to the reputation of global banks which are still reeling from the rate fixing scandal that erupted in the U.K. Barclays and other major banks are alleged to have manipulated a global benchmark lending rate to boost profits from their own trading of financial products linked to interest rates.

A panel of external lawyers commissioned by Nomura to investigate the three 2010 cases said in a June 29 report that equity sales staff was found to have sought information from colleagues about upcoming offerings that Nomura was underwriting and then pass along tips to customers.

The panel made a series of recommendations to prevent such incidents in the future, including banning conversations with clients about rumors regarding financing transactions and using personal cellphones for business.

Nomura provided an update on a series of preventative steps and "improvement measures" it planned to implement, mostly by the end of August "to restore confidence we have lost in the capital markets." They included reviews of internal controls and rules, employee training to reinforce awareness about insider tradingand penalties, and requiring equity sales staff to use mobile phones with a recording function.

Watanabe helped spearhead Nomura's expansion into Asia, engineering the company's purchase of Lehman Brothers' Asian and European assets following its collapse in 2008. Nagai said Nomura would continue to aim to be a global investment bank centered in Asia.

Nomura is reportedly losing underwriting business in wake of the scandal. The company is still being investigated by the Securities and Exchange Surveillance Commission and could face penalties.

Nomura's share price has fallen by more than a third since word of the investigation first surfaced in March, falling from 417 yen to 259 yen. It was up 5.7 percent Thursday on reports of Watanabe's resignation.

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