Shares in Nikko Cordial Corp., Japan's third-largest brokerage, plunged after the Nikkei English News reported the Tokyo Stock Exchange is preparing to delist the stock.
The shares fell as much as the daily limit of 200 yen, or 15 percent, to 1,147 yen and traded at 1,156 yen at 12:55 p.m. in Tokyo. It was the biggest percentage decline among stocks on the MSCI World Index.
Tokyo's stock exchange will review corrected earnings posted yesterday before making a final decision, Nikkei reported, without saying where it got the information. A delisting may happen as soon as April, according to the report. The exchange today said it hasn't decided whether to remove Nikko shares from trading.
``Hedge funds, individuals and other investors will continue to trade speculatively until the exchange makes a final decision,'' said Soichiro Monji, who helps oversee about $47 billion at Daiwa SB Investments Ltd. in Tokyo.
Six top Nikko Cordial executives have been forced out since Japan's securities watchdog on Dec. 18 said Nikko overstated earnings for the year ended March 2005. Moody's Investors Service, Standard & Poor's and Fitch Ratings have since cut Nikko's credit ratings.
``The report is wrong as we haven't made any decision,'' Tokyo Stock Exchange President Taizo Nishimuro said in a statement today.
Credit Risk
Nikko is the subject of takeover speculation centered on Citigroup Inc., its investment-banking partner, and Mizuho Financial Group Inc., Japan's second-biggest bank. Citigroup, the biggest U.S. bank, is in discussions to raise its 4.9 percent stake in Nikko, according to people familiar with the matter.
Mizuho scrapped a plan to acquire Nikko and will instead seek an alliance with Citigroup, company officials told Bloomberg News this week. The Tokyo-based bank owns 4.8 percent of Nikko.
``No matter what happens, clients' assets we manage are definitely safe,'' Nikko said in a statement to the stock exchange today. The company added that it's open to any ``possible business and capital alliances.''
Credit default swaps based on 1 billion yen ($8.4 million) of Nikko's debt dropped 10 percent to 3.3 million yen, the lowest in four weeks, according to data compiled by Bloomberg. The five-year contracts, which fall as perceptions of credit quality improve, declined amid speculation Citigroup will acquire Nikko and shore up its finances, said Nana Otsuki, a credit analyst at UBS Securities Ltd. in Tokyo.
Lawsuit
``Investors have optimism that Nikko Cordial's client and business fundamentals won't be largely damaged because there will be someone who wants to support Nikko,'' said Otsuki.
Mizuho spokeswoman Masako Shiono declined to comment, as did Citigroup spokeswoman Atsuko Yoshitsugu.
Orbis Investment Management is Nikko's biggest shareholder, with a 6.8 percent stake as of January, according to Bloomberg data. Harris Associates LP holds 6.2 percent.
Nikko yesterday said it will sue former executives including ex-Chief Executive Junichi Arimura, seeking compensation for losses suffered in the wake of the accounting scandal.
The broker is demanding 3.1 billion yen ($26 million) from Arimura, along with former Chief Financial Officer Hajime Yamamoto and Hirofumi Hirano, former chairman of Nikko Principal Investments Japan Ltd.
An outside inquiry last month led by former Financial Services Agency Commissioner Masaharu Hino singled out Yamamoto for ignoring an audit committee's objections to the treatment of transactions that boosted Nikko's earnings by 13.7 billion yen.
Nikko filed restated earnings to financial regulators yesterday, reducing estimated net income for the year ended March 2006 to 88 billion yen from the 96.4 billion yen previously reported. The company on Feb. 13 said it will boost compliance staff by a third, to 150.
source:www.bloomberg.com
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