TOKYO — A Japanese bank’s ambitions to become a global competitor to the giants of Wall Street and Europe faded on Thursday as two top executives quit in an insider trading scandal.  Kenichi Watanabe, the chief executive of the bank, Nomura — and the architect of its boldest expansion move, the 2008 acquisition of the Asian and European operations of Lehman Brothers — resigned, as did his chief lieutenant, Takumi Shibata, the chief operating officer. Their departures follow those at the other bank that swooped in during the financial crisis to grab some of the bankrupt Lehman’s businesses: Barclays of Britain, whose chief executive, Robert E. Diamond Jr., along with other top officers, quit this month after a settlement over interest-rate manipulation.  Nomura’s departing executive offered no apology at a news conference on Thursday. “Now it is time for a new era with new people,” Mr. Watanabe said.  The appointment of his successor, Koji Nagai, whose career has focused almost exclusively on the domestic market, may signal a retreat to Japan after the costly global ambitions of his predecessor. On Thursday, Mr. Nagai hinted at changes to come, saying that he hoped to rework Nomura’s global franchise “to an appropriate size.”  For months, the bank has been embroiled in an insider trading investigation. Nomura has acknowledged that employees leaked information on at least three public offerings in 2010 to favored fund managers, who then profited from short-selling ahead of the expected drop in the share price.  The insider-trading accusations have prompted much soul-searching in Japan. Some experts see the roots of the scandal in the Lehman deal, which they say was an audacious pursuit of scale and profit that diverted attention from compliance even as investment banks were coming under increased regulatory scrutiny. An internal inquiry into the insider trading accusations described the work environment at Nomura’s equities sales division as one in which “employees would be willing to do anything to meet sales targets.”  Others within the industry say the recent woes suggest that Nomura, Japan’s largest and most powerful securities company, has not improved internal controls since its scandal-ridden 1990s, when it admitted to paying millions of dollars to cover wealthy clients’ trading losses and to giving money to gangsters and racketeers.  The financial services minister, Tadahiro Matsushita, told reporters earlier this month that he could not help but think the insider lapses at Nomura “were a matter of routine.”  The insider trading revelations, on top of losses on Nomura’s overseas operations, have been a daunting turn of events for the company.  Just four years ago, the acquisition of Lehman’s international operations for a nominal fee was hailed as a return by Japan’s once-powerful banks to the world stage.  Instead, the takeover has come to overwhelm Nomura’s management. The acquisition swelled its global work force by more than 8,000 in Europe and Asia, and it saddled Nomura with exorbitant labor costs at a time of stagnating revenue from trading and investment banking. Tensions arose, those inside the company say, as Nomura let Lehman’s high-performance-based, low-job-security pay coexist with its own moderate salaries based on seniority and job security.  The Lehman culture of high risk tolerance, aggressive use of leverage and rapid decision-making also clashed with Nomura’s more hierarchical and conservative approach, insiders say. Soon, Nomura found itself reeling from a string of departures of top Lehman-era executives, led by Jasjit Bhattal, who resigned in January.  And though the acquisition was supposed to bring together Lehman’s global client list of hedge funds and other investors with Nomura’s strength in equities and services back home, the union has yet to pay off, and the Japanese bank continues to lose money abroad.  Despite the setbacks, Mr. Nagai, Nomura’s new chief executive, who ran the bank’s securities business in Japan, denied that the Lehman acquisition had been a mistake or that he had any plans to pare down Nomura’s overseas operations.  “All parts of the company will be under review,” he said.  And some analysts say that Nomura is unlikely to beat a full retreat. “The company still feels it needs a global network to offer domestic products to other markets and overseas to domestic clients,” Jefferies & Company analysts wrote in a note on Thursday.  Nomura also said on Thursday that it had eked out a net profit of 1.98 billion yen ($25 million) in the three months that ended June 30, down almost 90 percent from the 17.7 billion yen it reported in the period a year earlier, a result that still exceeded analysts’ expectations.  Mr. Nagai promised to regain investor trust in the bank. “I intend to reform the company mind-set,” he said.  Japanese investigators have been examining offerings in 2010 for the Mizuho Financial Group, one of Japan’s megabanks; Inpex, the oil and gas exploration company; and the Tokyo Electric Power Company, or Tepco, Japan’s largest utility and the operator of the now-destroyed Fukushima Daiichi nuclear power plant.  On each, Nomura employees reportedly gave tips to fund managers — at Chuo Mitsui Asset Trust, based in Tokyo, for Mizuho and Inpex, and at First New York Securities, based in New York, for Tokyo Electric — according to Nomura’s internal report, which was prepared by outside lawyers and released on June 29.  The offerings were controversial from the start. Tepco’s share price fell sharply, for example, in the two weeks before its offering was announced. According to the internal report, an employee of Nomura’s institutional equity sales division repeatedly contacted a colleague, an analyst, to gauge whether the utility might be considering a public offering.  The employee “engaged in various information activities to obtain inside information” and was frequently in touch by cellphone with a fund manager at a consulting firm, who took out a short position on Tepco two days before the share offer was announced, the report said. The fund manager also tipped off a trader at First New York Securities, who traded on its own account a day before the announcement. Both bought the stock back at a lower price, making hefty profits.  Japanese regulators are conducting a wider investigation into insider trading that has also looked at Nikko SMBC Securities, Japan’s third-largest brokerage house, and the Tokyo hedge fund Asuka Asset Management.  Foreign investors have long complained that insider trading is rampant in Japanese financial markets, particularly as Japanese corporations continue to try to raise capital in tepid equity markets. According to an analysis by Naomi Fink, a strategist at Jefferies who is based in Tokyo, Nikkei-listed companies were 30 percent more likely to issue new equity than their counterparts on the Standard & Poor’s 500-stock index in the United States over the last 11 years.  Experts say that Japanese markets would not be able to absorb such a large number of new issues if underwriters did not drum up interest in the issue beforehand by allowing hedge funds to trade on the expected share movements. But that practice has come at the expense of other investors.  “There is no particular reason to think that Nomura is any more (or less) leaky than any other underwriter,” Nicholas Smith, Japan strategist at CLSA Asia-Pacific Markets, said in a report this year.  On July 3, financial authorities asked 12 brokerage firms that operate in Japan, including Wall Street firms, to review how they handle nonpublic information.  Still, the spotlight has been on Nomura, and the consequences could be hefty. Earlier this month, Nomura was dropped from a list of companies chosen by the Finance Ministry to underwrite a government sale of shares in Japan Tobacco, worth around $6 billion. Other issuers, including the government-linked Japan Housing Finance Agency and Resona Holdings, have dropped Nomura as an underwriter.  Yet given Nomura’s powerful position in Japan, and its links with Japanese corporations, it is unclear how long issuers will stay away. Pension funds, bond issuers, municipalities, even long-term clients like Nippon Telegraph and Telephone marched away after Nomura’s scandals in the 1990s, only to return later. Nomura has had the top underwriting market share in Japan for 13 of the last 14 years, averaging over a 40 percent share in the last five years, according to Mr. Smith at CLSA.  Some analysts are calling for tougher regulations and for more changes at Nomura.  “Even with this management change,” said Mac Salman, head of Japan financials research at Jefferies, “there are still issues which need addressing at Nomura. Investors need to see a focus on profit generation soon.”
The Japanese bank's chief executive, Kenichi Watanabe, and one of his top lieutenants resigned on Thursday in response to recent revelations that their employees abetted insider trading.