(Feb 19): Norinchukin Bank chief executive officer Kazuto Oku plans to resign to take responsibility for the Japanese lender’s billions of dollars of 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. Chief financial officer Taro Kitabayashi, 54, will be nominated to replace him effective April 1, according to the person. The agricultural bank’s supervisory committee is scheduled to meet on Thursday to decide the changes, the person added.

A spokesperson for Norinchukin said nothing has been decided, declining to comment further. Nikkei first reported on the management change late Tuesday.

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 and pushed its dollar-funding costs higher than the returns from these securities. The new chief faces calls to diversify the bank’s US$300 billion (RM1.3 trillion), bond-heavy investment portfolio and bring in more outside talent.

Kitabayashi, who is also a managing executive officer, joined the bank in 1994 after graduating from the University of Tokyo. He rose through the ranks working in various corporate roles including planning and general affairs before becoming CFO in April 2023.

A government panel last month urged Norinchukin to diversify its portfolio, boost risk management and increase board members with experience in financial markets, including outsiders.

But more sweeping changes to the business model are unlikely. The unlisted bank acts more like an investor, with only a small portion of its balance sheet dedicated to lending. It’s owned by the country’s roughly 3,300 agricultural cooperatives, which depend on returns from the bank because of limited demand for loans in the countryside.

“Norinchukin Bank is a financial institution with limited lending functions and primarily manages securities,” said Hideyasu Ban, Bloomberg Intelligence senior analyst. “The new management team must not only strengthen operations, but also have the ability to monitor them.”

Norinchukin reported wider losses this month as it boosted investments in riskier leveraged loans and sought additional capital. Its losses of ¥1.4 trillion 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. The bank also reported ¥1.57 trillion in paper losses on its bond holdings.

Global markets have been fixated on how big the losses will end up, as the lender’s own estimates grew along with the cleanup of its 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.

Under Oku, who has been president since June 2018, Norinchukin was one of the biggest investors in CLOs, before paring back the investments amid growing regulatory scrutiny in Japan. Now it is returning to the market, with its holdings of the packaged leveraged loans jumping to ¥8.2 trillion last quarter, a 26% increase on the previous three months.

It’s not the first time for Norinchukin to change its leadership following investment missteps. CEO Hirofumi Ueno stepped down in 2009 after the bank lost money on asset-backed securities during the global financial crisis.

Uploaded by Magessan Varatharaja