Corgentum blog 7.26 - nomura


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Corgentum blog 7.26 - nomura

  1. 1. Nomura Holdings CEO, Kenichi Watanabe resigns following the Nomura insider-trading scandal, and hewill be replaced by longtime employee Koji Nagai. His resignation came just after COO, Takumi Shibata,resigned due to leaks of insider information to clients on the planned share offerings by energy firmInpex, Mizuho Financial Group and Tokyo Electric Power back in 2010.Mr. Watanabe and Mr. Shibata were known for leading Nomura’s global push back in 2008 when it tookover the non-US operations of Lehman Brothers. There global expansion plan was seen as a “once-in-a-generation” opportunity at the time, but now raises questions about the company’s plans for the future.Nomura does hope to make more bold choices, even restructuring a new global strategy into thecompany in hopes of gaining back trust from their investors and clients. Unfortunately, insider-tradingscandals such as this one is all too familiar with Nomura. Instances of staff leaking information on IPOsto customers before they are made public continues to occur within the company, and the firm evenbelieves that more cases of insider-trading, other than those already identified, are possibly lurkingunder the radar, revealing even more possible instability within the company.Although they are positive about their future, Nomura remains passive in attempts to prevent thesecases from springing, seeing as the pay cuts to Mr. Watanabe and Mr. Shibata were measures taken inresponse to their third insider-trading scandal. The company may have brought in a panel of attorneysto investigate the insider trading, but that should have been done years before as part of their duediligence, in an effort to hopefully prevent one, if not all the scandals from occurring.If Nomura had been more aggressive in their due diligence efforts, many warning flags could havepossibly been raised following a detailed operational due diligence report. Thorough investigation intothe management background could have raised possible warning signs on past discrepancies, suspiciousbehavior patterns or business relationships that could be seen as a threat to the company. As previouslystated, there had been three insider-trading cases identified back in 2010; all coming from theinstitutional sales department, but Nomura was slow to investigate these threatening practices. Anoperational due diligence review would have looked into that area of the company thoroughly, andcould have possibly revealed useful findings regarding possible conflicts of interest within thatdepartment.Furthermore, since the 1990s, Nomura has had to change their executive leadership twice. The firstinstance, back in ’91 occurred when their president admitted to compensating favored clients or stocklosses, and then again in ‘97 their president resigned when the bank was found to have channeled morethan $3 million to a gangster in order to keep him from raising trouble at the 1995 shareholder meeting.These past problems illustrate how reputational risk, though most times overlooked, is an importantcategory to analyze. Checking into past problems within the company is crucial to any operational duediligence review, and in doing this research, these two major events from the company’s past couldhave been revealed.Nomura Holdings, as well as Japan in general, has a history of insider-trading and illegal market activityscandals that continue to occur, regardless of their supposed efforts to solve the problem. UnlessNomura wants to risk the future of the company, they need to take a more active, aggressive role in
  2. 2. preventing further scandals from sprouting up within the company. Specifically, Japanese financialregulators need to be more vigilant in supervising market activity, as well as stricter in penalizing thosesuch as Nomura, for their violations to those market guidelines. Furthermore, investors need to take itupon themselves to seek an operational due diligence review when thinking of investing with aparticular firm. From a detailed review, necessary information regarding a company’s possiblydangerous reputational risk, as well as possible fraudulent and dishonest behaviors within the executivemanagement could be revealed, and protect investors from a possibly bad investment.