Norinchukin CEO plans to resign after massive bond losses

NORINCHUKIN Bank chief executive officer Kazuto Oku plans to resign to take responsibility for the Japanese lender’s massive losses from wrong-way bets on foreign bonds, according to a source familiar with the matter.

Oku, 65, will step down at the end of March, the source said, asking not to be identified discussing the private information. Managing executive officer and chief financial officer Taro Kitabayashi will be nominated to replace him effective Apr 1, according to the source. Nikkei first reported on the resignation.

A spokesperson for Norinchukin said nothing has been decided, declining to comment further.

Norinchukin became one of the most prominent victims of a surge in US interest rates, which drove down the value of its foreign bond holdings, while a jump in US dollar-funding costs outweighed returns from these securities. Traders and investors have been closely watching to see if the firm has a handle on the situation to limit losses.

Norinchukin reported wider losses this month as it boosted investments in riskier leveraged loans and sought additional capital. Its losses of 1.4 trillion yen (S$12.3 billion) in the first nine months of its fiscal year ending in March were close to the 1.5 trillion yen annual loss it had previously projected. Norinchukin’s paper losses on bond holdings stood at 1.57 trillion yen, compared with 1.5 trillion yen three months earlier, the results show.

The attention of global markets has been fixated on how big its final losses will get, as the agricultural lender’s own estimates grew along with the cleanup of its 45.2 yen trillion investment portfolio. As part of the overhaul, the bank has said it plans to invest in bonds, stocks and project finance, as well as securitised products such as collateralised loan obligations.

A government panel of experts has urged Norinchukin to diversify its bond-heavy portfolio and bring in more outside talent. BLOOMBERG