(Bloomberg) — Some of Japan’s largest financial institutions have halted trading securities with Nomura Holdings Inc. as the fallout from its market manipulation scandal spreads, according to people familiar with the matter.
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At least 10 firms, which include major life insurers, trust banks and asset management firms, have temporarily suspended some business activities with Nomura because of the breach, the people said, asking not to be identified discussing non-public information. They may resume their equity or bond dealings with Nomura when there are further developments such as when the brokerage details steps to prevent a recurrence, they said.
One of the country’s biggest retirement funds, Pension Fund Association for Local Government Officials, halted purchasing local government bonds and trading Japanese government bonds with Nomura for its in-house operations, according to an official at its fund planning and administration division. This took place from Sept. 26 in line with internal rules, the official said, asking not to be named citing company policy.
“As it is up to our clients to make decisions regarding individual transactions, we are not in a position to answer,” a spokesperson for Nomura said in response to queries from Bloomberg News.
The trading halts deepen woes for Japan’s biggest brokerage, which has taken hits on multiple fronts after authorities said last month that an unidentified employee manipulated government bond futures in 2021 by placing large orders without intending to buy or sell all of them.
In response, Japan’s finance ministry stripped the brokerage of primary dealer privileges at government debt auctions for a month. Many companies, including Toyota Finance Corp., have taken their bond underwriting business elsewhere, leading to a fall in league table rankings and market share for Nomura.
Shares of Nomura fell as much as 1.5% on Friday before recovering some losses at the close of trading.
Nomura admitted to Japan’s financial regulator that it had manipulated the bond market, following an investigation by the securities watchdog. Chief Executive Officer Kentaro Okuda apologized earlier this month, in his first public appearance following the allegations.
The loss of clients, if only briefly, is a setback for the brokerage that’s just returning to profitability after moving past several global missteps, including an almost $3 billion loss from the collapse of investment firm Archegos Capital Management LP. Nomura saw its annual profit grow for the first time since Okuda took charge in 2020.
Nomura has said that it will announce if there is any possibility of a material impact on its financial results from the fallout of this incident. The company is scheduled to report earnings for the three months ended September on Nov. 1.
“Large institutional investors are becoming more governance conscious,” Takamasa Ikeda, a senior portfolio manager at GCI Asset Management Inc., said about the firms’ moves. “Institutional investors need to make choices that beneficiaries can trust.”
Regulatory troubles have prompted Japanese companies to remove brokerages from debt underwriting mandates in the past. Few Japanese companies hired Mitsubishi UFJ Morgan Stanley Securities Co. on domestic bond deals for several months after regulators punished it over breaching information firewalls this year, Bloomberg-compiled data show.
SMBC Nikko Securities Inc. meanwhile suffered five straight quarterly losses and only recently returned to profit after a market manipulation scandal. Beyond the loss of business, the brokerage arm of Japan’s second-largest banking group was fined and had to forfeit earnings. Executives also had to take pay cuts.
“SMBC Nikko took more than a year before the fall in revenues bottomed out,” CreditSights said in a recent report, sticking to its market perform recommendation on Nomura. “We don’t see the impact being that punitive at Nomura.”
(Updates with pension fund’s move in third paragraph, Nomura’s share price drop in seventh paragraph, comment from analyst in 11th paragraph.)
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