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Nikko president and chairman resign

Nikko Cordial Corp, Japan's third-largest securities firm, said it named technology chief Shoji Kuwashima to replace president Junichi Arimura, who resigned over charges the company made false earnings statements.

Kuwashima, 51, Nikko's chief technology officer, takes over as president after Arimura and chairman Masashi Kaneko stepped down for failing to prevent breaches of compliance, the firm said in a statement to the Tokyo Stock Exchange.

"We can't deny this was a corporate failure," Arimura said at a press conference in Tokyo yesterday. "It's unforgivable that we, as a pillar of the stock market, would allow such an error."

Nikko shares plunged 23 percent in three days, wiping out US$2.8 billion of market value, when Japan's securities watchdog said it would seek a record ¥500 million (US$4.2 million) fine over the firm's lapses.

Regulators tightened supervision of the nation's financial markets this year, punishing Sumitomo Mitsui Financial Group Inc and Daiwa Securities Group Inc.

"Investors buy or sell shares based on earnings disclosure," said Toru Komatsu, who advises fund managers in Europe and wealthy clients in Japan as chief executive of Komatsu Portfolio Advisors Co. "Kuwashima needs to make every effort to improve Nikko's compliance system and rebuild confidence."

review

The Tokyo Stock Exchange said on Thursday that it would review Nikko and might remove its shares from trading. Fitch Ratings placed its BBB rating of Nikko's long-term debt on watch for possible downgrading, saying it would monitor the exchange's review.

The Securities and Exchange Surveillance Commission on Dec. 18 said Nikko overstated profit in documents related to a sale of ¥50 billion in corporate bonds on Nov. 22, last year.

The documents listed Nikko's net income for the year ended March last year as ¥46.9 billion, when the correct figure was ¥35.3 billion.

Japanese Chief Cabinet Secretary Yasuhisa Shiozaki called the resignations unfortunate.

"From the government's perspective, it's essential that the health of the stock market be reinforced," he said, speaking before the official announcement.

Nikko said in a press briefing in Tokyo on that day it was restating earnings for its past two fiscal years because "inappropriate accounting" led to errors.

Nikko didn't include a loss at a subsidiary in its group earnings because it was regarded as a special purpose company for a transaction.

asset managers

The false earnings charge against Nikko, which has an investment-banking venture with Citigroup Inc, prompted several asset managers to suspend business with the firm.

A number of asset managers said they would cancel business with Nikko Citigroup Ltd. They included Yasuda Asset Management Co, Societe General Asset Management (Japan) Co and Sumitomo Mitsui Asset Management Co, which has ¥11 trillion under management.

Kuwashima joined Nikko in 1977 after graduating from Tokyo Institute of Technology. He has worked throughout his career in the firm's information technology division, including trading systems, risk management and contingency planning.

Nikko shares gained 0.9 to ¥1,270 in Tokyo yesterday. The stock has rebounded about 10 percent since falling to a 15-month low ¥1,155 on Wednesday.
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