Norinchukin CEO Plans to Resign After Massive Bond Losses

(Bloomberg) — 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 person familiar with the matter.

Oku, 65, will step down at the end of March, the person 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 April 1, according to the person. 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 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 ($9.2 billion) in the first nine months of its fiscal year ending in March were close to the ¥1.5 trillion annual loss it had previously projected. Norinchukin’s paper losses on bond holdings stood at ¥1.57 trillion, compared with ¥1.5 trillion 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 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 securitized products such as collateralized loan obligations. 

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

(Updates with more background throughout)

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