Head of Japan's Biggest Securities Brokerage Quits : Finance: Nomura President Yoshihisa Tabuchi leaves after the company admits that it compensated its largest clients--but not others--for market losses.


The president of Japan's largest securities company announced his resignation today following reports that his firm loaned money to a former underworld boss and compensated large investors for their market losses.

Yoshihisa Tabuchi, president of Nomura Securities Co., said his resignation will take effect Thursday. Vice President Hideo Sakamaki was named to succeed him.

At a hastily called news conference, Tabuchi refused to link his resignation to any specific incident. "I will not comment on the individual cases, but responsibility should be taken by the president," he said, taking the typical Japanese corporate response to events that damage a firm's reputation. "Total authority at Nomura Securities rests with the president."

The resignation comes in the wake of a widening scandal that has rocked Japan's "Big Four" securities companies.

Asahi Shimbun, a leading Japanese newspaper, charged in a front-page story today that Nomura aggressively pushed up the price of Tokyu Corp., a railroad company in which Susumu Ishii--then head of the Izumikai, a gangster group--had built up a large holding.

Nomura denied that its support of Tokyu stock was related to Ishii's investment. But Nomura and Nikko Securities Co. admitted in separate press conferences Friday that their subsidiaries had loaned Ishii $260 million. They said they were unaware they were lending to a gangster.

Japanese police had earlier tied Ishii to West Tsusho, a company that paid Prescott Bush, President Bush's brother, to help it make large investments in two American companies, including one in which Bush was an adviser and part owner.

Nomura and Nikko also confirmed reports that they paid hundreds of millions of dollars to select customers to cover the customers' stock market losses in the year that ended in March, 1990.

Ministry of Finance officials called for an end to the payback practice in December, 1989, after more than a dozen companies were caught bailing out big customers.

The practice of "ramping up" certain stocks in which key customers have positions to help them recoup losses is not uncommon in Japan. However, authorities have been trying to crack down on such dealings because they give the public the impression that the market is rigged in favor of large companies--an impression likely to discourage small investors from playing the market.

Ishii bought shares in Tokyu from April to October, 1989, at prices ranging from 1,700 yen ($12.30) to 1,900 yen ($13.75), according to the Asahi report. After Ishii completed his purchases, Asahi said, Nomura asked its nationwide network of sales people to push Tokyu shares.

Within a month, the share's price had rocketed to 3,060 ($22.14). Nomura handled roughly 30% of the trades during the period, according to the Asahi. Of the loans made by Nomura and Nikko using the Tokyo shares as collateral, the bulk were made after the share price shot up.

A Nomura spokesman said that Tokyu Corp.'s stocks were popular at the time and that Nomura's decision to push the stock was unrelated to Ishii's purchases.

A Tokyo Stock Exchange official said the exchange is looking at the transaction but doesn't know whether any illegal activity took place. He added that the exchange does not have a mandate to investigate Nomura's ties to Ishii.

The controversy swirling around the securities industry comes at a time when the Tokyo stock market is in the doldrums. Authorities worry that tales of favoritism will discourage individuals from investing.

When the practice of paybacks drew widespread attention last year, Nomura officials insisted that the company was clean. But Vice President Yasuhiro Mizuuchi admitted Friday that Nomura had indeed paid $114 million to cover customer losses. Vice President Masao Yuki said at a separate press conference that Nikko had covered $120 million in customer losses.

A Nomura spokesman said, however, that the paybacks were a one-time event related to the Ministry of Finance's request that the companies close accounts in which they were making investment decisions for their customers.

Daiwa Securities Co. and Yamaichi Securities Co., which were among companies accused of paybacks last year, are now alleged to have tried to pass off $70 million in payback money as entertainment expenses, according to press reports quoting the National Tax Agency.

Ministry officials said the payback incidents show a break down in the system of "self-discipline." The ministry is reportedly studying a new law that would ban discretionary accounts in which brokerage houses act as money managers, making investment decisions for customers. It is in these accounts that brokers have been reportedly offering clients illegal guarantees against potential losses.

Tax officials also revealed that Nomura had been fined $10 million for under-reporting its 1987 income by about $30 million.

A former top executive of Yamaichi ominously compared Nomura's predicament to that of Sumitomo Bank. Both companies were industry leaders widely admired for their aggressiveness and success. Both found themselves overextended when Japan's speculative bubble burst and its stock prices plunged. Sumitomo's chairman recently resigned when the head of one of its branches was found to be tied to speculators under investigation by the Ministry of Finance.

Nomura's chairman, Setsuya Tabuchi, who is unrelated to the resigning President Yoshihisa Tabuchi, may not take over the revolving position of head of the Japan Securities Dealers' Assn. if public opinion is too strong, a Nomura spokesman said.

It is not unusual for Japanese securities companies to grant special favors to large clients. Favored clients, for example, are brought in early on stocks that a securities company choses to push. Since the majority of stocks in Japan are held by institutional investors in interlocking shareholdings that are not traded, few stocks are actually in circulation. It is not uncommon for the Big Four, who together handle the majority of trades on the stock exchange, to boost the price of selected stocks by simply making recommendations and engineering large purchases.

Securities companies have also been known to artificially inflate a company's share price before a public offering of stock to boost the company's income from the offering.

What makes the recent case different, market watchers say, is its scale. "They went beyond the bounds," one trader said. When the stock market plunged from the end of 1989 to early 1990, Nomura could not pay back its customers' losses by simply buying stocks for them and pushing up the price of the stock. For one thing, customer losses were too great to be easily covered. For another, observers note, the stock market has done so poorly since 1989 that stock manipulation has become difficult.

Traders say the Big Four's payments to customers, usually made by purchasing customer bonds at above-market prices, were a small price to pay for retaining clients who over time will generate many times that amount in profit for the company.

Nomura's paybacks may have hurt the company in other ways, however. Its image, long tarnished by the perception that it pushes stocks on an unwary public, will be further blackened. Its stock price has already come down several percentage points. And the market, on which Nomura depends for its prosperity, could be temporarily hurt by the public's renewed sense that they don't get a fair deal when they play the market.

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