[ by Howard Haykin ] Nomura Holdings Inc., Japan’s biggest brokerage, was dropped as a lead underwriter for state-owned Development Bank of Japan Inc.’s ("DBJ") bond sale this month, and replaced by Mitsubishi UFJ Morgan Stanley (MS) Securities Co.

"We’ve decided to drop Nomura in order to move ahead with our bond issuance without any disruption.  We need to avoid a situation where investors hesitate to buy our bonds just because a brokerage, which admitted to having internal control issues and conducted an investigation, helps manage the transaction." -- Daisuke Inaba, a Tokyo-based spokesman for DBJ, said by telephone today. “

Disgraced for Involvement with Insider Trading Case. This is the latest sign that an investigation by Japan's Securities and Exchange Surveillance Commission (SESC) into insider trading is hitting Nomura's business, and is likely to increase the pressure on the broker's CEO Kenichi Watanabe to move quickly to take action to limit further damage. Nomura has admitted it was the source of leaks - from its institutional sales department - on planned share offerings in 2010 by energy firm Inpex, Mizuho Financial Group, and Tokyo Electric Power.  Last month, it was omitted from a planned government sale of $6 billion worth of shares in Japan Tobacco. The brokerage said last week it was acting to toughen up its internal controls and strengthen compliance.  Mr. Watanabe's pay, and that of his COO, is to be temporarily halved, and 2 other executives stepped down.  It also said it was shutting down its equity sales desk for this week. Loss or Damage to Reputation Often is Irreversible. A sterling reputation is a ticket to heaven.  All the doors are open.  People and firms want to associate with you, include you in their deals.  But once a reputation has taken a hit, it can be very difficult, if not impossible, to reverse the destructive impressions and the fall from grace that can result. "Reputation is one's calling card" on Wall Street and across the global markets.  Once Nomura was implicated in the insider probe, then acknowledged that its employees were involved - they leaked material nonpublic information about clients - and senior management issued a public apology - the firm found itself shunned and excluded from their former inner circles and dealings. Over the course of one month, Nomura has been excluded from 2 underwriting deals.  And there will be more opportunities losts. Attempts to Recover and Restore Client and Peer Confidence. The lost mandate may increase pressure on Nomura CEO Mr. Watanabe to take more steps to restore clients’ confidence after employees leaked information ahead of share sales managed by the bank in 2010.  Nomura last week said it will cut top executives’ pay and suspend some operations amid a government crackdown on insider trading. Keiko Sugai, a Tokyo-based spokeswoman for Nomura, declined to comment.  DBJ hasn’t decided how much to raise from the bond sale, Inaba said.  Financial Services Minister Tadahiro Matsushita has called on 12 local brokerages to review how they handle confidential information, he said at a press conference today.  The measure is a response to leaks by the country’s “major” brokerage, he said.

C-I Note: We ask that our members learn from others' mistakes.  It's a lot easier than learning from your own.

For further details, go to: [Bloomberg, 7/3/12].