Harris Associates Takes 5% Stake in Nikko Cordial

U.S. investment house Harris Associates bought a 5% stake in Japan's Nikko Cordial ahead of a sharp fall in the scandal-hit brokerage's share price late last month, a regulatory filing

Chicago-based Harris spent about 65 billion yen (US$540 million) to buy 49.2 million shares in Nikko between Dec. 25 and Jan. 30, according to a report it submitted on Monday to the Kanto Finance Bureau, a branch of Japan's Finance Ministry.

Domestic asset managers have been dumping Nikko's stock on fears that accounting problems at the brokerage could cost it its Tokyo Stock Exchange listing, but some risk-hungry foreign investors have seized on the price fall as a chance to buy.

Harris, which is owned by French institutional money management group IXIS Asset Management, bought the shares at an average price of 1,321 yen apiece, the filing showed.

That means it could be sitting on a paper loss of 6.05 billion yen ($50.3 million) after the stock plunged by a quarter last Wednesday and Thursday, wiping $3 billion off of Nikko's total market value.

The shares have since recovered about half the loss. It was unclear if Harris still held its stake, had purchased more shares, or had sold during the slide. The stock had been slowly recovering until last week's renewed plunge, which was prompted by a critical report on the accounting mess by an in-house panel led by a former regulator.

Shares in Nikko first began falling in late December after Japan's third-biggest broker acknowledged that it improperly booked about $150 million in profits related to an acquisition by its merchant banking unit.

The TSE put the brokerage's status under review, and Nikko has since re-stated its past earnings a second time to retract an additional $140 million of improperly booked earnings.

Canadian investment group Mackenzie Financial grabbed a 5.74% stake in Nikko after its initial fall to become its top shareholder.

Harris, which had $68.5 billion under management as of Dec. 31 and is known for its Oakmark funds, listed asset management on behalf of clients as its reason for buying the Nikko shares.

The filing showed that Harris acquired the shares, amounting to 5.04% of Nikko's stock, at between 1,267.62 yen and 1,413.50 yen in periodic off-exchange transactions from Dec. 25 to Jan. 30.