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Tuesday, March 13, 2007

TSE rules out delisting of Nikko stock

Reprieve may impact Citigroup's takeover bid

Staff writer

The Tokyo Stock Exchange will not delist scandal-tainted Nikko Cordial Corp. because it cannot confirm whether the brokerage falsified its financial statements in a systematic manner, TSE President Taizo Nishimuro announced Monday.

The announcement defied widespread speculation that the TSE would delist Nikko Cordial in mid-April. On Tuesday, Nikko Cordial's stock will be taken off the monitoring post, where it was placed in December after the brokerage admitted falsifying its financial statements for fiscal 2004.

The TSE's decision, made unanimously at an executive meeting, was good news for Nikko Cordial, which has been losing customers to rival brokerages since the accounting scandal surfaced.

But it may not be good for U.S. financial services giant Citigroup Inc., which was preparing to launch a public tender offer for the brokerage under a comprehensive alliance accord reached last week.

Citigroup may be forced to raise its bid of 1,350 yen per share if it wants the buyout to succeed, some analysts said. Since Nikko Cordial will not be delisted, its stock price may rise significantly.

"The whole scenario was based on the assumption that Nikko Cordial would be delisted," said an analyst who asked not to be named. "Shareholders are likely to hold on to its shares until the price gets higher."

At least four key U.S. investment funds that are major shareholders in Nikko Cordial have rejected Citigroup's offer as being too low. Together, they hold 25 percent of the brokerage's stock.

A rival bidder may emerge in the future, the analyst said.

Nikko Cordial President Shoji Kuwashima meanwhile said his company will stand by the agreement made with Citigroup, which was reached amid fears it would be delisted.

The Osaka Stock Exchange and the Nagoya Stock Exchange also said Monday that they would not delist Nikko Cordial. The bourses meanwhile issued separate warnings to Nikko Cordial for its acts and ordered the scandal-tainted brokerage to submit a report by March 26 on measures it has taken to improve management.

In December, Nikko Cordial admitted falsifying its fiscal 2004 financial report by padding profits through illegal manipulation of transactions among affiliates.

The brokerage initially reported a consolidated pretax profit of 77.7 billion yen between April 2004 and March 2005, but revised the figures downward to 54.0 billion yen last month.

The Financial Services Agency fined the brokerage 500 million yen in January.

In January, an outside panel commissioned by Nikko Cordial said some former managers were responsible for the accounting irregularities. The company has decided to file a lawsuit against three former executives to seek a combined 3.1 billion yen in damages.

"I cannot deny that several people (at Nikko Cordial) apparently committed inappropriate acts," Nishimuro told a hastily arranged news conference. "But I cannot say the acts were committed systematically and intentionally."

TSE criteria call for a company to be delisted if it falsifies financial reports and the consequences are deemed "grave" by the bourse itself.

Nishimuro said Nikko Cordial's acts were not grave enough to merit delisting as in past cases.

Nishimuro pointed out that Seibu Railway Co., which was delisted in December 2004 for accounting fraud, had been padding its books for 40 years and its executives were well aware of the wrongdoing.

Cosmetics giant Kanebo Ltd. also reported years of net profits although it was essentially in the red, he said. In June 2005, Kanebo was delisted for inflating its group net profit by a combined 216 billion yen in the five business years through March 2004.

Nishimuro also said bourses worldwide were waiting to see how the TSE would exercise its vast powers.

"Even if the Financial Services Agency and the Securities and Exchange Surveillance Commission reprimand a company, it may not always be a good decision to delist that company," Nishimuro said.

The TSE president added that the bourse is considering ways to reprimand a firm without delisting it.

Nikko Cordial's Kuwashima told reporters that the decision erased a "big source of concern."

Kuwashima quoted Douglas Peterson, Kuwashima's counterpart and a senior Citigroup executive, as saying that he was very happy about the decision as a partner.

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The Japan Times

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