(Bloomberg Opinion) -- Nomura Holdings Inc. is no stranger to being in the doghouse with investors. The Japanese brokerage isn’t out of it yet.
The firm’s shares rose the most in more than two years Wednesday, surging 10.5% after it announced a surprise $1.4 billion buyback. Monday’s annual general meeting still promises to be a testing experience for Chairman Nobuyuki Koga and Chief Executive Officer Koji Nagai. The pair, who are up for re-election, have a lot to do to prove they’re still the right people to lead Nomura after the firm posted its first annual loss in a decade and was penalized for leaking sensitive stock-market information.
After Wednesday’s rally, Nomura stock remains 43% lower since the start of 2018, compared with a 14% decline in the benchmark Topix index. The Tokyo-based firm’s quarterly return on equity has fallen below zero from more than 9% in the three months through June last year. The repurchase, which is equal to 8% of shares outstanding, will help boost that metric – provided the brokerage doesn’t continue to post losses.
Nomura has plenty more to contend with. In early April, Nagai started the third overhaul in his seven-year tenure as CEO, after the company reported an annual net loss of 100.4 billion yen ($933 million). Just as investors were cheering its plan to cut $1 billion in costs, mostly by scaling back overseas investment-banking operations and closing more than 30 of 156 domestic retail branches, the brokerage ran into more corporate-governance controversies.
In May, Japan’s financial regulator told the firm to strengthen internal controls after employees passed on sensitive information from its Nomura Research Institute Ltd. affiliate to institutional clients. Given that Nagai became CEO after his predecessor quit following an insider trading scandal, this wasn’t a good look. Nomura was dropped from managing fundraising deals after the regulator’s admonition, and Nagai took a three-month pay cut of 30%.
Proxy advisory firm Institutional Shareholder Services this month recommended investors vote against Nagai’s reappointment, saying he should be held responsible for the leaks. ISS, along with fellow adviser Glass Lewis, also recommended shareholders vote against Koga. (Glass Lewis withdrew its opposition after Nomura decided Koga will no longer chair its nominating and compensation committees.)
One path forward for Nomura would be to further scale back ties with its research affiliate. The brokerage cut its stake in Nomura Research Institute to 23.1% from 36.6% to fund the buyback. Disposing of the remainder would raise more funds to keep shareholders happy and put more distance between the companies, reducing the risk of further unfortunate information leaks. The firm could also dispose of its 34.8% stake in Nomura Real Estate. Japan Post Holdings Co. attempted to buy the property developer a couple of years ago but backed out after booking a large writedown on an Australian acquisition.
Shedding these businesses would enable Nomura to focus on its core domestic brokerage business. Then again, a fourth revamp in seven years might simply cause investors to ask when the firm is finally going to get it right.
To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net
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Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.
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