Insider Trading Scandal Claims Nomura Bosses

The biggest management shake-up at Nomura Holdings in a decade and a half was orchestrated by the bank's chairman with the secrecy and precision of a military operation.

The closely guarded timing of Thursday's announcement that Chief Executive Kenichi Watanabe was quitting stunned senior managers at Japan's top investment bank. Watanabe, 59, had vowed only a month ago to ride out an insider trading scandal.

Behind the scenes, pressure had been building on Watanabe for weeks to resign from a bank that is at the centre of Japan's capital markets, people with knowledge of the matter said.

Eventually, Chairman Nobuyuki Koga, 61, pushed Watanabe to go in an effort to appease regulators and end an escalating probe that was costing the bank new business, according to people familiar with talks between Nomura and Japan's Financial Services Agency (FSA).

Nomura has acknowledged staff from its institutional sales team leaked information on three Japanese share issues to clients in 2010. The bank has been caught up in a wider crackdown on tip-offs ahead of share offerings in Japan that has implicated several other brokers and fund management firms. Nomura warned on Thursday that more cases from inside the bank could emerge.

Analysts say the departure of Watanabe and Chief Operating Officer Takumi Shibata raises questions about the bank's commitment to overseas markets since both men were the architects of Nomura's troubled acquisition of Lehman Brothers' business in Europe and Asia in 2008.

Nomura has struggled to integrate the bankrupt Wall Street firm and has since scaled back its global expansion plans, hit by the same headwinds buffeting other investment banks. Its stock has lost three-fourths of its value since the acquisition. Watanabe's replacement, Koji Nagai, said on Thursday he would not dismantle the global franchise but would carry out a review to find the "appropriate size" for the bank.

For many inside Nomura the question was simpler: How did things unravel so fast for Watanabe?

Nomura declined to comment on the events leading to Watanabe's resignation. Neither Koga nor Watanabe could be reached for comment on this article.

MANAGERS SUMMONED TO EMERGENCY MEETING

Although Watanabe had begun talking within the bank since May about management changes, many inside Nomura believed he intended to remain CEO until early 2013, a compromise that would allow him to retire at 60 rather than resign early.

At 3 a.m. on Thursday, the day of a scheduled board meeting, top managers were sent an email ordering them to an emergency meeting in a few hours time. The reason was not disclosed, but one hour earlier the Nikkei newspaper had broken the news on its website: Watanabe was out.

With the exception of a handful of people closest to Watanabe and Nagai, the shake-up came as a shock, senior executives told Reuters. By the time reporters arrived at Watanabe's house in Chiba outside Tokyo just after dawn, a security guard was in place to tell them he was not at home.

"I had no idea," one high-level executive said.

Later that day, Watanabe told a news conference he had decided to resign after setting up a new compliance system intended to stop further breaches of confidential information from the bank's underwriting department.

But a more nuanced picture emerges from interviews with 10 regulatory and company sources about the tension-filled weeks that preceded Watanabe's announcement as the cost of the scandal grew and Koga opened a backchannel to regulators.

In the past two months, at least nine Japanese issuers have dropped or demoted Nomura as a bond or stock underwriter.

That included Nomura's relegation to a lesser role in the $8 billion initial public offering of Japan Airlines (JAL), which will be the world's second biggest this year after Facebook's $16 billion IPO. Nomura had been working on the JAL deal as a global coordinator for a year when the decision was made. JAL has declined to comment on the matter.

"KOGA WRAPPED IT ALL UP FOR US" - FSA OFFICIAL

Against that backdrop, Koga, the chairman, stepped forward to smooth Nomura's ties with the FSA and head off costlier sanctions, which could range from an order to improve compliance to a damaging suspension of some operations for weeks, sources with knowledge of the situation said.

Koga, who had been Nomura chief executive for five years before handing the reins to Watanabe in 2008, also led the decision to appoint Nagai as CEO and Atsushi Yoshikawa, Nomura's head of U.S. operations, as COO, sources said. The reshuffle contained a key provision -- Watanabe would stay on as an advisor but not get involved in decisions made by the new team.

"Koga wrapped it all up for us," a senior FSA official told Reuters, speaking on condition that he not be identified.

The insider trading scandal was not the only reason regulators wanted fresh leadership at Nomura. Some senior FSA officials and company executives felt Watanabe and Shibata should be held accountable for pursuing a global expansion that hurt the bank's earnings, sources said.

Watanabe had called the Lehman deal a "once in a generation opportunity" in 2008. By 2011, markets had turned against him and he launched a $1.2 billion cost-cutting drive, mainly targeting the ailing European operations.

There are still Nomura executives who believe the logic behind the deal was sound. Watanabe's supporters say it would have been difficult to predict the extent of the European debt crisis and how tough industry conditions would become.

"Among Japanese financial institutions he was the only leader who really had the ambition to build a global franchise," one person close to Watanabe said. "I really wanted him to succeed."

KOGA'S RESPONSE SHAPED BY PAST

In the late 1990s, Koga was Nomura's liaison to the Finance Ministry and learned about the importance of dealing carefully with Japan's powerful bureaucracy.

In 1997, Koga watched then chairman Masashi Suzuki navigate a scandal triggered by Nomura's admission that it had made illegal payments to a gangster to stop him causing trouble at a shareholders' meeting in 1995.

Suzuki took over temporarily as president and in one month mapped out a response that included the resignation of 15 senior executives as well as his own.

"Chairman Koga was close to this when it all went down. I think he learned what you have to do to get over a crisis," said an executive at a Nomura group firm.

In May, Koga formed a small team of executives, including Shoichi Nagamatsu, who would soon be drafted to oversee the bank's compliance efforts. Over the coming weeks, Koga made several trips to the FSA, the sources said.

As early as March, some senior officials in the FSA and the Securities and Exchange Surveillance Commission (SESC), which is handling the insider trading investigation, had called privately for Watanabe's dismissal.

In addition to stonewalling on the probe, the sources said, Watanabe appeared to eschew protocol in dealing with regulators.

He annoyed regulators for not alerting them of his plan to name Nagai as the new brokerage unit head and then later in March by not paying a courtesy call on then Financial Services Minister Shozaburo Jimi after the first case implicating Nomura was announced, regulatory and banking sources said.

The FSA does not have the legal power to force management changes but has previously used its influence to oust executives. Watanabe's departure would seem to make it less likely Nomura will face harsh penalties when sanctions are announced in the coming weeks, regulatory sources said.

THE INVESTIGATION CONTINUES

By May, Watanabe had started telling others inside Nomura he was willing to quit if that would resolve the crisis, sources said then.

Pressure to take that step mounted as the investigation expanded and it became apparent Nomura might have to acknowledge its involvement in a wider range of cases.

Since late April, SESC investigators had been inside Nomura, working on the 14th floor of the brokerage's office in Otemachi. Their target was the kind of leak that had become widespread in Tokyo by 2010 when many companies issued new shares to recapitalize. Information on those issues, which dilute the stakes of existing shareholders, had begun to leak to investors who profited by shorting, or selling the shares, market participants and regulators say.

Nomura has said it was involved in leaks of information on three issues in 2010: by Mizuho Financial Group, energy firm Inpex Corp and Tokyo Electric Power.

At the time it was underwriting those share offerings, Nomura's institutional equity sales department was split into two groups -- one responsible for mainly long-only fund management companies and the other for hedge funds.

The early phase of the SESC's probe and Nomura's own internal investigation had focused on the division handling buy-and-hold style fund managers. But as the SESC investigation moved into July, the focus shifted to hedge funds.

On June 29, Nomura published the results of the internal investigation led by outside attorneys that detailed sweeping breaches of internal controls and a raft of measures aimed at preventing further leaks of confidential information.

On the same day, hedge fund Japan Advisory was fined for insider trading, allegedly on a tip provided by Daiwa Securities Group. After that, the FSA ordered all brokers with big underwriting desks to report back on their dealings with Japan Advisory, which regulators believed was paying brokers outsized commissions in return for tips.

Those reports are due to be filed with the FSA by August 3.

That directive put the spotlight on the brokers who worked closely with Japan Advisory and its head, Edward Brogan. Industry sources have said Nomura was one of the banks competing for Brogan's business.

Japan Advisory has declined to comment on its case. Brogan has not returned e-mails and phone calls seeking comment. Daiwa Securities announced on Friday that its own investigation found a former employee had tipped off Japan Advisory but that such leaks were not orchestrated by the brokerage.

In an update to its internal investigation, Nomura said on Thursday there was a "high possibility" its sales staff had leaked inside information on other issues beyond the three in 2010. While Nomura said in the report that it had not identified any cases involving hedge funds, a review of e-mails, chats and phone calls revealed "suspicious contacts" with clients ahead of public share offerings.

As time wore on, the stress on Watanabe grew.

At the June 29 news conference when he insisted he would keep his job, Watanabe appeared sullen and withdrawn.

"I think he was tired. The last one to two months have been grueling," the person close to him said.

His resignation on Thursday was met with relief by investors and regulators. Shares in Nomura, which had lost more than a third of their value since mid-March when the SESC announced the first case implicating the bank, are up 11 percent.

"We hope the reborn Nomura will make a fresh start," Financial Services Minister Tadahiro Matsushita told reporters on Friday.




http://www.chicagotribune.com/business/sns-rt-us-japan-nomurabre86s04h-20120729,0,5777520.story?page=1

Anti Yakuza Laws Being to Bite VII - Reducing Street Vendors at Matsuri

Changes are afoot at this year’s traditional summer festivals held in the Kansai area, reports Shukan Jitsuwa (Aug. 2). Recently enacted anti-organized crime ordinances have significantly reduced the number of street vendors often present at these traditional events.

Nationwide legislation that prohibits ordinary citizens from having business dealings with criminal organizations was enacted last October. In April 2011, a special mandate regarding the exclusion of gangsters was passed in Kyoto Prefecture.

During the period between July 14 and 17 of this year’s Gion Festival, held in the famed geisha quarter of Kyoto, the Gojo Roten Kumiai vending association estimated that there were 200 fewer stalls in the streets in comparison to last year. The stalls typically sell everything from grilled chicken to ice-cold beer.

Such a decline is attributed to a motion on June 22 of the Kyoto Gion Matsuri Yamaboku Rengokai volunteer organization, which vowed not to fear, utilize, or give money to organize crime groups, which notoriously back street-vending activities. The Kyoto Prefectural Police in turn limited the number of street stalls at the event.

“While the police say it is taking such measures to reduce crowd-related accidents it is evident that the intention is to eliminate merchants making a living through these shops,” says a journalist on the police beat. “Regarding concerns about ensuring crowd safety, control measures implemented two years ago are sufficient. The real intent is to get rid of organized-crime-related merchants.”

Vendors were not pleased. “The regulation blocked us from having our street shop,” says a merchant whose festival booth goldfish scooping. “While the authorities say it is to ensure pedestrian safety,they still let establishments set up special booths in front of their regular shops. It is simply designed to eliminate us.”

Another merchant laments that the festival’s spirit is being reduced as a consequence. “While we are indeed merchants who make a living through these festivals, we are also proud of what we do and that we help in turning the festivals into lively events,” says the stall proprietor. “This is what we want to convey to the authorities.”

While these merchants are claiming to be victims, tourists on Shijo Street, the main avenue of the festival, told Shukan Jitsuwa that the change was positive as traffic flowed more swiftly and a better atmosphere resulted.

Moves to limit vendor numbers exhibiting at the Tenjin Festival, the highlight of Osaka’s summer calendar, are already underway. “The elimination of many vendors from major festivals is becoming a trend, but the real issue will be with smaller scale festivals,” says a journalist covering local news.



http://www.tokyoreporter.com/2012/07/25/goodbye-to-gangsters-at-kyotos-gion-festival/

May 2012 - 17 million Facebook Users

The latest NetRatings study from Nielsen Japan show us that Facebook is slowly rising from where it just a little over a year ago. There was only about 8 million native Japanese on Facebook in May 2011. That number has jumped to 17 million in May of 2012. That represents almost 30 percent of all Internet connected individuals in the country. 


The undisputed king of social media in Japan, Mixi, might not be king for much longer. Latest numbers showed Mixi having only about 20 million Japanese users. That’s only a 3 million difference and Facebook could easily overtake Mixi within the next few months if they haven’t already.

AllFacebook attributes the rise in Facebook popularity to the horrific tsunami and earthquake that hit Japan in March 2011. With the country’s major form of communication (cell phones) down, they took to social networking to connect with friends and family. It would also appear that more Japanese college students are using the social media site to look for work.

Facebook is going to have to look beyond the U.S. and Europe for growth now that it’s a publicly traded company. Gaining a larger foothold in Asia will definitely do wonders for their user base and might even increase revenue. Of course, there’s limited room for growth in Japan for sites like Facebook, so the company should definitely be setting its sights on China. A few deregulations here and there would really help Facebook make a splash in the highly lucrative Asian market.



http://www.webpronews.com/facebook-amasses-17-million-japanese-users-2012-07

Proposed 10% increase in Minimum Wage

A subcommittee of a labor ministry advisory panel decided Wednesday to recommend that the nation's minimum hourly wage be raised by an average of 7 yen in fiscal 2012.

The size of the proposed increase was limited to less than 10 percent for the second consecutive year but exceeded the 6 yen hike of the preceding year. If raised in line with the recommendation, the average minimum wage will go up from 737 yen to 744 yen.

The subcommittee of the Central Minimum Wages Council, which advises Labor Minister Yoko Komiyama, agreed to move toward ending cases in which the minimum wage is below the level of welfare benefits by next fiscal year in principle.

Such cases are seen in 11 prefectures at present. The proposed minimum wage hike is expected to help eliminate the phenomenon in as many as nine prefectures.

But the negative gap is not expected to be eliminated in Hokkaido, where it presently stands at 30 yen, or Miyagi Prefecture, where the current shortfall is 19 yen.

In the three northeastern prefectures hit hardest by the March 2011 earthquake and tsunami, the minimum wage was recommended to be raised by 7-10 yen in Miyagi and by 4 yen in Iwate and Fukushima.

In fiscal 2011, which ended in March, wage levels were affected by the impact of the disaster. As a result, recommended minimum wage hikes were limited to 1 yen in about 80 percent of the nation's 47 prefectures.

In the current fiscal year, however, the proposed hikes in most regions exceeds the previous year's levels, reflecting the nation's economic recovery on the back of reconstruction demand after the disaster.

In addition, wages at small firms, used as a key reference by the panel, have grown 0.2 percent in the current year from the previous year, marking the first rise in four years.

The proposed minimum wage increases in all prefectures ranged from 4 yen to 20 yen.

The recommendation will be formally decided at a meeting of the council on Thursday. Based on the decision, panels in each prefecture will decide the minimum wage levels that companies will be required to pay to workers in line with local living costs.


http://www.yomiuri.co.jp/dy/business/T120725005334.htm

Radioactive strontium detected in 10 prefectures

Radioactive strontium, thought to have been released following the Fukushima Daiichi nuclear disaster last year, has been detected in 10 prefectures across Japan, the government said Wednesday.

The Ministry of Education, Culture, Sports, Science and Technology confirmed that small amounts of radioactive strontium have been detected in Akita, Iwate, Yamagata, Ibaraki, Tochigi, Gunma, Saitama, Chiba and Kanagawa Prefectures, as well as in Tokyo, Fuji TV reported.

The ministry said that the highest detected level was in Ibaraki where readings of 6 becquerels per square meter were detected. A ministry spokesman was quoted as saying that radiation at this level has a negligible effect on human health, Fuji reported.

The government’s findings come weeks after the Tokyo Shimbun reported the Koto Association for the Protection of Children held a press conference in the Tokyo metropolitan government building on June 7, to announced the results of a survey it carried out, which showed high levels of radioactive cesium in an athletic ground near the Tobu sewage sludge processing plant in Tokyo.

The research, carried out by the association and Professor Tomoya Yamauchi of Kobe University, found cesium levels of 230,000 becquerels per square meter, an amount six times higher than the limit set for material leaving the radiation exclusion zone in Fukushima, Fuji reported.


http://www.japantoday.com/category/national/view/radioactive-strontium-detected-in-10-prefectures

June - Economy Loses Momentum As Deflation Persists

Japan's consumer prices declined in June, indicating that the country's economy continues to be affected by the soft global demand, the worsening crisis in the euro zone and the strengthening yen.


The data released Friday by Japan's Statistics Bureau show that consumer prices declined to 0.2 percent in June from the earlier year. Policymakers agree that one of the government's most important goals is to beat deflation.

A main reason for the existence of deflation in Japan is due to the shortage of demand relative to the supply capacity of the economy. The negative output gap is estimated to be 3.5 percent of the gross domestic product (GDP), meaning that the demand is around 17 trillion yen ($217 billion) less per year than the potential supply. How the government addresses this will indicate whether it can achieve the target of 3 percent nominal GDP growth per annum through 2020 with inflation of 1 percent, meaning that the economy should achieve a 2 percent annual real growth.


Policymakers feel that deregulation can help along with the Bank of Japan (BoJ) continuing with its monetary easing measures. Increasing the labor market participation would also be a step in the right direction as more people working would translate into higher national earnings and higher spending.

Another major worrying factor is the strengthening of the yen, especially due to global factors. The revival of the euro zone crisis has prompted a renewed flight to safe investment opportunities. The yen has appreciated sharply against the euro to its highest level since 2000, and strengthened against the dollar back into the 78-79 range. Earlier this month, the Japanese Finance Minister Jun Azumi warned markets that he was ready to intervene as it was necessary to prevent the yen from appreciating further since it did not reflect the real state of Japan's economy.


A weaker yen would help the Japanese exporters, but the Ministry of Finance is unlikely to succeed in delivering it while investors seek to escape the euro zone crisis. With the expectation that the euro zone crisis could escalate further, this is likely to push the yen up sharply and unilateral intervention is unlikely to be that much of an offset on its own.

Meanwhile, the BoJ could ease monetary policy further and, indeed from its statements this month, it would do so if the strong yen threatens the economy, possibly a coded warning of further asset purchases.




http://www.ibtimes.com/articles/367805/20120728/japan-economy-deflation.htm

TEPCO to raise household electricity rates 8.46% from Sept.

http://mainichi.jp/english/english/newsselect/news/20120725p2g00m0dm069000c.html