Nomura shares jump on US$1.4 billion buyback and governance tweaks

Chief Executive Officer Koji Nagai is expected to be voted out by some shareholders at the next shareholders’ meeting. (Reuters pic)

TOKYO: Nomura Holdings Inc. surged the most in more than two years in Tokyo trading after it announced a surprise US$1.4 billion share buyback along with plans to reduce its chairman’s role to bolster governance.

Just days before its annual shareholder meeting, Japan’s biggest brokerage said on Tuesday that it will trim its stake in an affiliate that was involved in a damaging information leak and use the proceeds to fund the stock repurchase. The stock jumped as much as 10% on Wednesday morning, the most since November 2016, paring this year’s decline to 11%.

Nomura’s shareholders are scheduled to gather on Monday, with one influential proxy adviser calling for the ouster of Chief Executive Officer Koji Nagai after the firm was penalised for leaking sensitive stock-market information. Nagai is trying to restore investor confidence by cutting costs at its global investment banking and markets business and trimming retail branches at home following its first annual loss in a decade.

“We believe the firm’s relative share price and earnings momentum is bottoming,” SMBC Nikko Securities Inc. analysts including Shinichiro Nakamura wrote in a note. “The firm could well have put the worst behind it for now, though we will need to monitor the longer-term picture in terms of cost cuts through restructuring and a bottom for earnings at the retail and wholesale divisions.”

In the deal announced Tuesday, Nomura Research Institute agreed to buy back its shares from Nomura for 160 billion yen (US$1.5 billion), pushing down the brokerage’s stake in NRI to 23.1% from 36.6%. NRI shares rose as much as 2.7% on Wednesday morning.

Chairman role
Nomura withdrew its proposal to re-elect Chairman Nobuyuki Koga as head of the compensation and nominating committees, it said in a statement. It is now asking shareholders to vote in favour of outside director Hiroshi Kimura for those positions, a move that it said: “will help further enhance governance.”

Proxy advisory firms Glass Lewis and Institutional Shareholder Services had urged shareholders to vote against Koga, 68, due to concerns over governance. Glass Lewis said having an inside director as chairman of the two committees made the oversight of executive performance and pay “more complicated and less rigorous.”

ISS recommended that shareholders also vote against Nagai, 60, saying he should be held responsible for the information leak. The Financial Services Agency ordered Nomura to improve internal controls over the incident, and companies dropped the firm from managing fund-raising deals. Nagai took a 30% pay cut for three months but vowed to stay on as CEO.

The leak began with a Nomura Research Institute employee, who was on a Tokyo Stock Exchange panel considering an overhaul of the bourse’s sections of listed stocks. The person gave information on the potential threshold for the changes to a strategist at Nomura’s main securities unit, and the brokerage’s employees then shared the information with institutional clients.