Restoring Nomura’s credibility will take more than pay cuts

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Instead of a bonus, a steep pay cut is wrapping up the year for the chief executive of Nomura. Japan’s largest investment bank has announced measures to calm investors after a former wealth management employee was charged with attempting to murder and rob a client. But pay cuts and apologies won’t cut it: the reputational damage Nomura has sustained on Kentaro Okuda’s watch will not be easy to overcome.

Okuda, also president of Nomura’s domestic securities unit, will return 30 per cent of his salary for three months, the company said on Tuesday. Other executives will also take pay cuts as the brokerage continues to deal with the fallout from two big scandals this year.

The latest will shock not just Nomura’s shareholders but its clients too. A former Nomura wealth management division employee has been charged with attempted murder, robbery and arson. The 29-year-old man is alleged to have drugged and robbed an elderly couple at their home in July, after which he set the house on fire. 

Nomura says it has strengthened supervision of employees when visiting client homes, is introducing block leave to help detect wrongdoing and adding professional ethics training. The bank has also apologised.

This isn’t the first problem this year. The bank is already under heightened scrutiny from regulators: it was fined in October over the manipulation of Japan’s government bond futures market in 2021. That led to Okuda’s first voluntary pay cut of the year. But it has also resulted in a loss of market share: its corporate bond market ranking fell to sixth place in November, down from third place before the probe, according to Bloomberg data.

The taint of repeated scandals will overshadow growing earnings at the bank. Net profit more than doubled in its latest quarter and it has been making progress in its strategy to cut costs. Nomura has said it has space to cut costs by a further $187mn in the short to medium term, on top of existing plans to cut $414mn.

Shares of Nomura are up 55 per cent in the past year, reflecting that earnings growth. But despite those gains, the shares still trade at a steep discount to global peers, at just 0.9 times tangible book.

Banks, but in particular wealth management businesses, rely on credibility, trust and an unquestionable focus on their clients. As such, this incident could have long-lasting consequences. It will take much more than pay cuts for Okuda to repair the company’s image.

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