Nomura Holdings Inc, Japan's largest brokerage, is facing growing scandals that could jeopardize its recovery efforts, which were starting to show promise.

On Thursday, Chief Executive Officer Kentaro Okuda and other senior executives decided to take a pay cut after the company revealed that an employee had manipulated the bond market. This incident led several firms to halt trading with Nomura. Shortly after this news, a local agency reported that a former employee had been arrested on charges of robbery and attempted murder against elderly clients. 

On Friday, Nomura is expected to announce its financial results, showing that profits have increased for the third consecutive quarter. This growth is a sign that CEO Okuda’s changes are taking effect. If this happens, it will be the longest period of profit growth the company has seen in almost ten years. However, ongoing bad news may overshadow these positive results. “It’s about sentiment,” said Hideyasu Ban, a Bloomberg Intelligence analyst, adding the brokerage will need to allay concerns among clients about the former employee’s arrest. “Their reputation is at risk.”

The scandals highlight Nomura's reputation for making mistakes, such as data leaks and losing billions due to the collapse of Archegos Capital Management. On Friday, Nomura's shares dropped in Tokyo, decreasing by as much as 2.7 per cent. Meanwhile, the benchmark Topix index fell by up to 1.7 per cent. Okuda has aimed to overcome previous challenges since taking on the top position over four years ago. Nomura has benefitted from a surge in deals and trading as Japan's stock and bond markets have started to recover from a long period of inactivity. Okuda's goal is to double the company's pretax earnings by 2031.

The bank is trying to manage a difficult situation following some strange events in recent weeks. In September, Japan’s Financial Services Agency (FSA) revealed that an employee at Nomura had made misleading trades in the government bond futures market back in 2021. The trader engaged in a tactic called layering, where they placed large orders without the intention of completing all of them, allowing them to profit from the trades. As a result, the FSA fined Nomura 21.8 million yen (about $144,000) on Thursday. The trader involved is no longer with the company, according to sources who spoke to Bloomberg News.

This incident has caused clients to move their bond trading and underwriting business to other firms, which is impacting Nomura negatively, especially as Japan starts to grow again. At least ten institutional investors have temporarily stopped some business with Nomura due to a breach, according to sources familiar with the situation. Other clients have also removed the company from underwriting debt deals. As a result, Nomura's ranking in the corporate debt market fell to fifth place in October, down from third place the previous month, based on Bloomberg data. Additionally, the broker's primary dealer special entitlements for government debt auctions were suspended for about a month.

“We take this matter very seriously,” the company said in a statement Thursday, as it apologized to clients and concerned parties. “We will continue to further enhance our compliance framework and internal controls to prevent similar incidents occurring in the future and to regain trust.” In response, Okuda agreed to cut 20% of his salary for two months. Deputy President Yutaka Nakajima and other executives at the domestic securities unit will also take pay cuts, either similar or smaller, as stated in an announcement.

However, after this announcement on Thursday, Nomura faced more trouble when Kyodo reported that a former employee had been arrested for robbery and attempted murder involving two clients. The 29-year-old had worked for Nomura Securities Co. at the time of the alleged crime in Hiroshima back in July, according to an unidentified source linked to the investigation.

A report claims that a former employee is suspected of drugging an elderly couple, stealing around 26 million yen in cash from their home, and then setting the house on fire. Fortunately, the couple, who are in their 80s, managed to escape unharmed. A representative from Nomura Holdings confirmed that the individual was dismissed for disciplinary reasons, but did not specify when he worked there. “It is extremely regrettable that a former employee of ours has been arrested,” the spokesperson said.