Nomura faces shutdown

Japan's Finance Ministry is preparing to shut down Nomura Securities' head office and some of its branches for up to six months as one of the country's biggest finance scandals escalates.

Six months' closure is the maximum penalty under the Securities and Exchange Law. Nomura is suspected of breaking that law by compensating a sokaiya, or corporate blackmailer for investment losses.

This follows Friday's arrest of Nomura's former president Hideo Sakamaki, 61, in connection with 49.7m yen (pounds 260,000) in hush money that Nomura is suspected of paying to Ruichi Koike, a reputed corporate blackmailer.

The scandal could not come at a worse time for Nomura. Japan is promising sweeping deregulation of its financial markets and authorities, after years of lax regulation, are anxious to prove they have what it takes to police a free market.

If regulators find evidence of wrongdoing, the Ministry of Finance could order Nomura to stop selling to institutional customers and trading on its own accounts. Most analysts have predicted the ban would be for three months. It is not clear whether the London office would be affected.

Government penalties for a compensation scandal could wipe out hundreds of millions of dollars in Nomura's income. Revenue from in-house trading alone accounted for $1.8bn (pounds 1.1bn), a quarter of Nomura's total revenue, in the year ended March 1996.

The losses would compound the already serious drop in income as a handful of former clients bar Nomura from issuing their new securities and refuse to trade stocks and bonds through the brokerage. Customer flight could cost the brokerage 50bn yen in profit in the year to March 1998, estimates Takehito Yamanaka, an analyst at SBC Warburg Japan.

Analysts are confident Nomura will come roaring back to recapture lost market share after serving whatever penalty it gets.