Nikko Cordial, the Japanese brokerage group that is struggling to repair its image after regulators recommended a record fine for inflating profits, has been forced to delay the filing of its first-half results and financial statements by more than a month.
The delay – because of a change of auditor and an internal investigation – is another blow to Nikko Cordial.
The delay will also push back a decision on Nikko’s listing status on the Tokyo Stock Exchange by an additional month. Following its penalty, Nikko Cordial was put on a watchlist of companies that could face delisting by the exchange.
Mikio Kitabayashi, newly appointed president of Nikko Cordial Securities, said: “We have lost trust in a major way so we are working as hard as we can to regain that trust.”
The group said it also agreed with Junichi Arimura, Nikko’s president, and Masashi Kaneko, chairman, who resigned on Monday to take responsibility for the affair, that they would return part of their compensation to the company. The former executives’ performance-linked bonus payments were based on the higher profits the group had reported.
Mr Kitabayashi also admitted that Nikko Cordial Securities had suffered a significant drop in business since the scandal broke, with Japanese government bond sales to individual investors falling to about half the monthly average and increased redemptions of investment trusts.
Nikko Cordial, in which Citigroup has a 4.85 per cent stake, has been shaken by claims that it inflated profits in the year to March 2005 by consolidating Nikko Principal, its private equity arm, but not another unit 100 per cent controlled by Nikko Principal.
The regulators charge that Nikko inflated profits by as much as 33 per cent because of the inappropriate accounting. Nikko is being forced to revise down its net profits to reflect that loss.
Furthermore, Nikko issued corporate bonds soon after it unveiled its results based on the inflated profits.
Nikko Cordial executives had blamed the inappropriate accounting on one rogue employee and refused to take responsibility.
However, they were forced to change tack following critical reports in the media and after regulators privately challenged the possibility that one errant employee could pad profits so easily.
The Securities and Exchange Surveillance Commission has recommended the Financial Services Agency fine Nikko Cordial Y500m ($4.2m), the most it would ever have imposed.
Nikko said it had delayed the filings after it decided to change its auditor from Misuzu to Aarata to reflect the findings of an internal investigation.