Chief Operating Officer Atsushi Yoshikawa did not name any specific companies but said Nomura would consider taking equity stakes as part of any alliance.

“The best situation would be a 100 percent stake but given various regulations that is probably not realistic,” Yoshikawa told a briefing for analysts and media. “We could end up taking a minority stake or not take any stake at all.”

Yoshikawa cited Thai brokerage Capital Nomura Securities PCL CNS.BK, in which Nomura holds a minority stake, as an example of a successful partnership.

Last month, Nomura reported its highest quarterly profit in seven years thanks to Japan’s booming stock market, which has surged 50 percent this year on the back of the central bank’s aggressive monetary easing and a sharp slide in the yen.

The brokerage on Wednesday increased its target for Japanese retail assets to 100 trillion yen by March 2016 after clearing its previous target of 90 trillion yen last month.

Nomura is about 80 percent through a $1 billion cost-cutting program announced by CEO Koji Nagai in September. The cuts are focused on its equities and investment banking operations, with nearly half of the planned reductions in Europe.

Yoshikawa said Nomura was not planning to aggressively expand overseas but could hire additional sales staff to increase the distribution of its fixed income products and bolster its equities operations in Asia.

Nomura was also looking to add investment bankers to expand its coverage of the healthcare and technology sectors in the United States, Yoshikawa said.

($1 = 102.5450 Japanese yen)

(Editing by Shinichi Saoshiro and Miral Fahmy)

Loeb said his Third Point hedge fund had accumulated a little more than 6 percent of Sony’s shares – a stake worth $1.1 billion – making it the largest stakeholder in the inventor of the Walkman portable music player and Trinitron TV.

In a letter personally delivered to CEO Kazuo Hirai at Sony’s headquarters on Tuesday, Loeb said Third Point was willing to put up another 200 billion yen ($1.97 billion) to support an initial public offering of a 15-20 percent stake in the entertainment arm, which includes one of Hollywood’s top film studios and a leading music label.

The $13 billion hedge fund said the move would generate cash to help the company’s ailing electronics operations, and could add another 60 percent to Sony’s stock price, which has already doubled this year amid a strong rally in Japanese shares.

Loeb set his argument against a backdrop of hope for corporate reform under the leadership of Prime Minister Shinzo Abe, who returned to power in December promising to pull the economy out of a two-decade slump.

“Sony stands at the crossroads of compelling corporate opportunity and massive Japanese economic reform,” Loeb wrote in the letter, which was disclosed to the media. Corporate leaders like Hirai, he added, “can spearhead this important growth.”

While Sony has sold off real estate and other assets to cover losses on flat TVs and other consumer electronics, it has previously rejected investor calls to spin off Sony Entertainment.

“The entertainment businesses are important contributors to Sony’s growth and are not for sale,” Sony said in response to Loeb’s proposal. “We look forward to continuing constructive dialogue with our shareholders as we pursue our strategy.”

Hirai is due to give an update on his Sony strategy at a briefing in Tokyo on May 22.

JAPAN CHALLENGE

Loeb, a 51-year-old Californian, is one of the best known figures in the secretive $2.25 trillion hedge fund industry and an activist investor with a record of clashing with corporate executives over strategy. Forbes estimated his wealth at $1.5 billion in March.

After taking a stake in Yahoo Inc, he agitated successfully to oust the CEO and members of the Internet company’s board last year after charging that directors were living in “an illogical Alice-in-Wonderland world.”

But activist investors have had little success in Japan, where corporate boards are typically packed with insiders, and creditor banks tend to side with management in maintaining the status quo.

And what Loeb is proposing is hardly new. Investors have for years been calling for a break-up of Sony to unlock the value of its profitable parts, whose performance is masked by the struggling electronics arm.

Rather than a traditional IPO, Loeb has proposed selling a 15-20 percent stake in Sony Entertainment through a rights offering to existing Sony shareholders. The move would allow the parent company to shift some debt off of its balance sheet, the hedge fund CEO said.

Taking the unit public would provide incentives for its executives to run the operations more efficiently. Raising its profit margins to the industry average could in theory add another 625 billion yen in market value, Loeb said.

Most importantly, the cash generated could be used to help streamline the electronics business, which suffers from a lack of focus even after Hirai took the helm from former CEO Howard Stringer in 2012, Loeb said.

Stringer cut thousands of jobs and made efforts to narrow the company’s focus. But ultimately he failed to revive Sony’s creative edge and the company ceded ground to Apple Inc and South Korea’s Samsung Electronics Co.

The flagship Third Point Offshore Fund posted a return of 10.5 percent for investors in January-April, a time when the rest of the hedge fund industry lagged with an average return of just under 5 percent. The fund was helped by its positions in Yahoo, a bet on Greek government bonds and its holdings of Japanese shares.

(Reporting by Nathan Layne, Emi Emoto, Tim Kelly and Chikafumi Hodo; Editing by Edwina Gibbs and Ian Geoghegan)

The industry has enjoyed bumper profits largely as a result
of a 60 percent rally in the Nikkei average since mid-November,
sparked by hopes the economic policies of Prime Minister Shinzo
Abe would jolt the economy out of its two-decade slumber.

That rise has pumped up the industry’s bread-and-butter
businesses of broking stocks and mutual funds.

Daiwa, Japan’s second-largest brokerage, reported on
Wednesday that its net profit totalled 48.7 billion yen ($500
million) in the January-March period, blowing past analysts’
expectations to mark its best quarter in seven years.

Despite the dramatic upswing in the market – trading volume
has ballooned and hit a record high in April following the
central bank’s surprise monetary easing – neither Daiwa nor its
bigger rival Nomura Holdings Inc has indicated it has
any intention to expand.

“We are not thinking that these good conditions will carry
on forever,” Nomura’s Chief Financial Officer Shigesuke
Kashiwagi said last Friday after Nomura reported a
near-quadrupling of quarterly profit on a 27 percent jump in
sales.

Nomura’s caution stems in part from its purchase of chunks
of failed Wall Street bank Lehman Brothers in the wake of the
global financial crisis of 2008, a move that saddled it with a
high-cost structure that took years to get under control.

Nomura is still working through a $1 billion cost-cutting
programme launched last year, about half of which was targeted
at its European operations. Daiwa has also reduced hundreds of
overseas jobs and its cautious about expanding outside Japan.

Daiwa Chief Financial Officer Mikita Komatsu said on
Wednesday the broker was not looking to hire more people or make
big investments, and would instead focus on using its existing
operations to capitalise on renewed interest in Japanese shares.

“We may pick our spots when it comes to investing in
opportunities overseas, but you won’t see any major
investments,” Komatsu said at an earnings briefing. “We consider
it our core mission to expand the investor base in Japan.”

TAX-FREE INVESTING

Japan’s top brokers have all started to position themselves
to capture clients generated by a new tax-free investment scheme
aimed at prompting individuals to shift more of their $15
trillion in personal assets into equities and mutual funds.

The programme will allow brokerage and bank account holders
to invest as much as 1 million yen a year without paying tax on
any returns. The Japanese government has set a target of
attracting inflows of more than $260 billion by 2020.

The scheme is one factor behind optimism at SMBC Nikko
Securities, which stands out as the only leading broker with
solid expansion plans.

Japan’s third-largest brokerage said last month it wants to
add another 25 branches to expand its retail network by more
than 20 percent over the next three years. It is also planing to
boost its staffing by 600 to 8,600.

“For the first time in a long time we’ve got the winds at
our back,” Akira Inoue, head of finance at SMBC Nikko, told a
briefing on Tuesday.
($1 = 97.4100 Japanese yen)

(Reporting by Emi Emoto and Chikafumi Hodo; Editing by Daniel
Magnowski)

Nomura Chief Financial Officer Shigesuke Kashiwagi said his bank had been informed on April 23 that Nomura Bank International’s (NBI) assets in Italy had been frozen.

Kashiwagi said Nomura believed the move was unwarranted and said the action would have no impact on the settlement of the Japanese bank’s trades across Europe and the assets were small.

Prosecutors investigating risky derivatives trades that have endangered Monte Paschi’s survival ordered on April 16 the seizure of around 1.8 billion euros of assets from Nomura in connection to the probe.

The trades include a structured deal known as ‘Alexandria’, done with Nomura, a similar trade called ‘Santorini’, with Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz) and a smaller deal called ‘Nota Italia’, done with JP Morgan (JPM.N: Quote, Profile, Research, Stock Buzz).

The frozen assets include a “small amount of cash and receivables”, Kashiwagi said at an earnings briefing.

“These assets will remain the property of NBI, but pursuant to the prosecutor’s order, may not be withdrawn,” the CFO said, adding the bank would attempt to talk with prosecutors to resolve the situation.

Assets of Nomura’s Milan branch were not frozen as this account is used for funding day-to-day operations, he added.

Nomura did not disclose the amount of the frozen assets. A source close to the case told Reuters Italian prosecutors had frozen around 140 million euros ($182 million) in Italy.

The investigation into Monte Paschi is politically sensitive as the Tuscan bank had strong links with local center-left party leaders.

Apart from the Italian assets, prosecutors have been unable to get their hands on any Nomura assets after the Bundesbank turned down a request to block Nomura assets in Germany.

According to Italian law, the order to freeze Nomura’s assets needs to be confirmed by an Italian judge, at the latest on Saturday, or it will become void.

Monte dei Paschi, Italy’s third-largest bank, was forced to book losses of nearly 1 billion euros after disclosing details of the complex derivatives deal.

The bank had already been weakened by the euro zone crisis and has been forced to accept help from the state in the form of 4 billion euros of state bonds to meet tough capital requirements set by European regulators.

Monte dei Paschi Fabrizio Viola said in an interview published on Monday the bank could hold a planned 1 billion euro capital increase next year and did not rule out more asset sales to reinforce its balance sheet and avoid nationalisation.

“We think that conditions will be right to hold the capital increase in 2014,” Viola said in an interview, adding the offering would be aimed primarily at institutional investors.

Monte dei Paschi will hold a shareholder meeting on Monday.

(Writing by Lisa Jucca; Editing by Elaine Hardcastle)

A pro-casino group of Japanese lawmakers has tapped an
influential member of the ruling Liberal Democratic Party (LDP)
as its leader and plans to submit legislation this year aimed at
opening the world’s third-largest economy to casino gambling.

Although casinos are illegal, Japanese are already active
gamblers, and a pinball-like game called pachinko generates some
$200 billion in revenue each year – about the same as Toyota
Motor Corp. Japan is often touted as the next major
casino market after Chinese enclave Macau, the world’s biggest
gambling hub, which raked in revenue of $38 billion last year.

A large and wealthy population coupled with a proximity to
Shanghai and Beijing has the potential to transform Japan into a
lucrative gaming centre, providing tax revenues to shore up the
state’s ailing finances, analysts say. Broker CLSA estimates
Japan’s gaming market could be worth at least $10 billion if two
large-scale integrated resorts are approved – more than
Singapore’s $5.9 billion and Las Vegas’ $6.2 billion in 2012.

The cross-party casino group aims to submit a promotional
bill to parliament in the autumn, which could be followed by
concrete laws within two years, Takeshi Iwaya, the deputy head
of the lobby of more than 100 lawmakers, told Reuters.

POLITICAL CHANGE

Submitting a bill would mark progress for a pro-casino camp
that has struggled to gain traction for more than a decade even
as other Asian countries develop multi-billion dollar resorts to
attract tourists and investment. A major roadblock in Japan has
been the near constant change in political leadership.

But hopes have been raised by the return to power in
December elections of the business-friendly LDP under popular
Prime Minister Shinzo Abe, who has indicated he is open to the
idea of casino resorts.

The group will introduce Hiroyuki Hosoda, a veteran LDP
lawmaker and former chief cabinet secretary, as its new chairman
at a meeting on Wednesday. Hosoda will have the ear of the
administration, an important piece of the puzzle that has been
lacking in recent years, Iwaya said.

“You need both sides of the equation before things really
get moving. We want to make that happen this year,” said Iwaya,
whose group is proposing an integrated resorts model that
incorporates tourism, conventions and entertainment, as well as
casino gambling – an approach based in part on the strategy
adopted by Singapore when it opened its first casino in 2010.

Yet many analysts remain sceptical there is enough political
support. An attempt to introduce a casino bill last year to help
fund rebuilding of the earthquake-hit northeast fizzled in the
face of the December poll.

One potential complicating factor is the Japan Restoration
Party, formed last year by popular Osaka Mayor Toru Hashimoto,
which has said it may introduce a bill on its own even though
its lawmakers are members of the cross-party group.

“One of the projects that would definitely bring investment
into the country and create jobs is casino gaming. The issue is
whether they can finally get their act together to make it
happen,” said Paul Bromberg, gaming industry expert and CEO of
consultancy Spectrum OSO Asia.

SOCIAL IMPACT

One of the group’s most pressing tasks is to get Abe, who is
enjoying high support ratings due to aggressive economic
policies aimed at defeating deflation, to include casinos in a
growth strategy to be announced in June. In a March parliament
session, Abe said he could see the economic benefits of
introducing casinos – a statement proponents interpreted as
support for the movement – but he also mentioned the need to
study the potential social costs.

Casino legislation could be submitted around September after
an upper house election expected in July.

At the very least, a bill would face resistance from the
Communist and Social Democratic parties, both of which worry
about crime and other harmful side effects on society,
representatives from the small opposition parties said.

Communist Party lawmaker Mikishi Daimon said there was not a
clear consensus on the merits of introducing casinos, including
within the LDP.

Given the expected economic boost, legislation would likely
receive broad support among Japan’s business community, while
casino operators including Las Vegas Sands and Genting
Group have also shown keen interest in
opening a casino in Japan.

Among potential beneficiaries highlighted by Mizuho
Securities in a March report are pachinko machine maker Sega
Sammy Holdings and Fuji Media Holdings, a
broadcaster headquartered in the Odaiba area of Tokyo seen as a
prime spot for a casino should legislation pass.

Tetsuya Kubo, who became president of the brokerage arm of banking group Sumitomo Mitsui Financial Group Inc (SMFG) (8316.T: Quote, Profile, Research, Stock Buzz) this month, said he wanted to open 25 new branches as part of an effort to increase retail client assets by one-third, to 30 trillion yen ($302 billion), by 2016.

The aggressive shift in strategy for SMBC Nikko, which has 109 branches and has not opened a new one in five years, could also mean tougher competition for Nomura Holdings Inc (8604.T: Quote, Profile, Research, Stock Buzz) and Daiwa Securities Group Inc (8601.T: Quote, Profile, Research, Stock Buzz), Japan’s two largest securities firms which have about 180 and 120 branches, respectively.

Kubo, 59, said there was a need to invest in the brokerage’s retail network after years of tight cost controls under the previous owner Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz), which sold the franchise, known as Nikko Cordial, to SMFG in 2009.

“Nikko is strong in retail but for the past several years we didn’t really put resources into branches and staff,” Kubo, previously chief financial officer of SMFG, told Reuters in an interview last week. His comments were embargoed for release on Monday.

“To be a winner over the long term there is a need to increase staff,” Kubo said. Earlier this month, the company announced it would boost overall staffing by 600, to 8,600, under a three-year business plan.

A DIFFERENT LOOK

Kubo said he was confident that bold fiscal and monetary steps under Prime Minister Shinzo Abe, aimed at pulling the economy out of deflation, would continue to push stock prices higher.

He would not be surprised, he said, if the Nikkei stock average .N225 reached 16,000 by the end of 2013. That would be a gain of another 20 percent for the benchmark from its close on Friday at 13,316.48, after already rallying some 50 percent since Abe was tipped as a candidate for premier in mid-November.

Kubo also noted a marked increase in interest from foreign investors during the final months of his tenure as the banking group’s CFO, when the aggressive economic stimulus espoused under “Abenomics” set stocks rising and the yen tumbling.

While it was normal to be called on by asset managers in charge of Japan, he also started to get requests for meetings from global managers of equity funds.

“There was a different look in their eyes. They wanted to know what was happening in Japan, what had changed,” he said.

Japanese individuals, which park the bulk of their $15 trillion worth of savings in bank deposits and other low-yielding instruments, have been a particularly hard sell for Japanese stock brokers and asset managers. Memories still linger of the collapse of Japan’s asset bubble two decades ago, which hit retail investors hard.

Kubo sees SMBC Nikko’s ties to its parent bank, which owns 100 percent of the broker, as a key advantage over independent securities firms such as Nomura and Daiwa in tapping the renewed retail investor interest in stocks.

The brokerage has attracted 1 trillion yen in assets through referrals from SMFG bank clients since becoming part of Japan’s third-largest banking group, Kubo said.

Of the 7 trillion yen increase in retail assets the brokerage is targeting over the next three years, it hopes to capture another 1 trillion yen through such referrals from SMFG, which has 10 times the number of accounts as SMBC Nikko, he said.

($1 = 99.2400 Japanese yen)

(Editing by Edmund Klamann)

Rodolfo Soriano, a consultant with ties to the former head
of the gaming regulator in the Philippines, received the fee in
2010 to secure land rights for the $2 billion casino, Universal
had said. But records reviewed by Reuters show those rights were
obtained for free in 2009.

The FBI is involved because the payment originated from a
Universal subsidiary based in Nevada. Both the FBI and the
Philippine National Bureau of Investigation (NBI) have been
looking into a total of $40 million in transfers to Soriano as a
possible bribery case since last year.

In a closed-door, three-day hearing with the Nevada Gaming
Control Board that concluded on Friday, Universal directors,
including the company’s billionaire founder Kazuo Okada, were
questioned about the payment, a source familiar with those
proceedings said.

In a statement issued to Reuters as that hearing ended,
Universal said it now believed the $25 million payment to
Soriano should not have been made.

Universal said its board had not been aware that the land
rights problem had been resolved without any money changing
hands between Universal and the owner of those rights in late
2009.

It blamed three former employees for the mistaken payment
and said one of them had withheld information from the board
that could have prevented the transfer.

Universal sued the three Japanese men last year, claiming
they were to blame for $15 million in payments to Soriano
without proper authorization. It offered no evidence to support
its additionoal claim they were also responsible for the $25
million it has now disavowed and said its investigation into the
matter was still ongoing.

The three former employees declined to comment. They have
challenged the company’s previous claims in filings to the Tokyo
District Court.

Soriano could not be reached for comment and his whereabouts
are unknown.

Universal generates the bulk of its profits from pachinko
machines – a cross between slots and pinball — in Japan. The
Philippines marks its first independent foray into casino
operations and is a key plank of its push to expand overseas.

It has said it conducted its business in the Philippines
lawfully, and in December announced a defamation suit against
Reuters for its reporting on the payments to Soriano.

Universal said it was still investigating how the $25
million payment to Soriano was used.

“We have no information at this time that this money was
used to pay any government officials,” the company said in a
written statement to Reuters.

NO-COST DEAL

When Universal paid $300 million for reclaimed land for its
Manila Bay casino project in 2008 it failed to secure the rights
to develop more than a dozen “road lots”, representing about a
quarter of the site of a luxury complex it hopes to open in
2014. The titles to the lots were held by local developer
Asiaworld Properties Philippine Corp, records show.

Universal turned to the Philippine Amusement and Gaming
Corporation (PAGCOR), the industry regulator, to find a solution
to the road problem, according to the people with knowledge of
the matter. PAGCOR declined to comment on its involvement.

A PAGCOR lawyer assigned to the case helped broker an
agreement in November 2009 under which Asiaworld gave Eagle I
Landholdings Inc, a Universal affiliate, a free hand to
consolidate and develop the road lots as it saw fit.

Eagle I agreed to bear the cost of building an equivalent
area of roads and open space, after which it would turn the land
over to Paranaque City, the local municipality. The move
relieved Asiaworld of its legal duty to develop the lots and
donate them to Paranaque.

There was no financial transaction written into the
agreement, a certified copy obtained by Reuters shows.

Paranaque Mayor Florencio Bernabe told Reuters that FBI
agents visited him in January to ask about the agreement, which
he signed, and related documents.

Asiaworld did not have the funds to develop the roads and
was happy to authorize Eagle I to shoulder that cost, a lawyer
for the developer said. “For us it was a welcome development,”
said Arcel Fetizanan, noting the move also eliminated its tax
liabilities. “It was a simple agreement. No cash involved.”

The FBI declined to comment on the existence of a probe into
the Soriano payments, citing its media policy. Philippine
Justice Secretary Leila de Lima said an investigation by the NBI
into the transfers to Soriano had been extended, but did not
comment on specifics of the case.

ACCOUNTING CHANGES

Universal initially accounted for $35 million paid to
Soriano with an invoice and a corresponding contract indicating
his firm be paid $28 million for solving the road problem and $7
million as a consultant fee, copies of the documents seen by
Reuters show.

Last month, Universal determined that $10 million was
improperly routed through Soriano and back to the company, and
revised its accounting for the payments. At the time it stood by
the $25 million outlay as an investment in its Philippine
project.

A panel of experts hired by Universal to look into the
payments determined the $25 million had been properly authorized
but it has yet to pass judgment on whether the consulting fee
was justified based on the services provided by Soriano.

Universal’s acknowledgement that the $25 million was
unnecessary raises the prospect of another accounting revision.
The Osaka Securities Exchange, which oversees its stock listing,
had given Universal until Monday to present evidence justifying
the payment, people familiar with the exchange’s probe said.

(Additional reporting by Rosemarie Francisco in Manila, and
Taro Fuse and Kevin Krolicki in Tokyo; Editing by Ian Geoghegan
and Dean Yates)

The exchange’s involvement is the first time the payments have drawn the attention of Japanese regulators. The FBI and Philippine authorities have been investigating $40 million in payments to a politically-connected consultant in Manila since last year.

The exchange, which oversees Universal’s Jasdaq stock listing, has asked the company to explain how the payments were treated in Universal’s financial statements for the fiscal year to March 2010, said people with knowledge of the request, who didn’t want to be named as the investigation is ongoing.

Universal has said it carried out its business in the Philippines lawfully. The company, which also makes pachinko machines, announced in December it filed a defamation lawsuit against Reuters for reporting on its payments to Rodolfo Soriano, a former consultant to the gaming regulator in the Philippines. Universal declined to answer specific questions about its accounting.

In a statement last month, Universal said there was a “need to verify the suitability of accounting procedures”, and it would revise its accounting if directed to do so by a panel of three outside experts it has commissioned to look into the payments.

One of the issues examined by the Osaka exchange involves a $10 million payment that was wired to Soriano from a Universal affiliate in Hong Kong and immediately circulated back to Universal by a former employee in May 2010, as the company was preparing to release its financial statements that June, said the people with knowledge of the investigation.

The exchange is focused on whether Universal improperly booked part of the payment as an asset on its balance sheet, inflating its profits, the people said.

A spokesman for the Japan Exchange Group, the OSE’s holding company, said it did not comment on any investigation underway at a specific company. Soriano could not be reached for comment.

“NOTHING LOST, NOTHING GAINED”

Reuters was first to report in December that the $10 million was wired to Soriano’s firm and immediately circulated back to Universal’s accounts with the objective of closing the books on a loan that Universal determined could not be recovered.

Universal has sued three former employees over the $10 million transfer, claiming they made the payment without authorization.

A Universal representative told a Philippine congressional hearing on the payments on November 28 that the transaction had been neutral to Universal’s accounts because a bank cheque for $10 million from HSBC, made out to Universal, arrived on the same day $10 million was transferred to a firm registered in Soriano’s name. The representative did not say who, if any individual, signed the cheque.

“Nothing lost, nothing gained. But, as Universal Entertainment, we don’t know what is this transaction,” Masahiro Terada, the president of Tiger Resort, Leisure and Entertainment, the company set up to operate the Manila casino, told the hearing. “It came back. Return, return.”

But the exchange is questioning whether Universal sought to avoid taking a charge for the loan as well as other aspects of the accounting for the $30 million that remained with Soriano, people with knowledge of the matter said.

The $10 million payment was booked as the repayment of a loan to a firm called AZ Games International which had been dissolved for several months at the time of the transfer, according to people with knowledge of the transaction and records viewed by Reuters. Universal originally lent the money to AZ Games in 2008 to invest in Philippine casino clubs, said a person with direct knowledge of that deal.

One of the problems from an accounting perspective is that part of the $10 million was booked as a fixed asset related to its plot of land for the casino on Manila Bay, said people with knowledge of how the payments were accounted for.

That has raised questions over whether its profits were boosted by not fully accounting for what would have normally been a cost to dispose of a bad loan.

“It goes without saying, but if what’s on the balance sheet does not represent a payment to a real counterparty – a real asset with value – then that’s a problem,” said Mitsuru Tagaya, a professor at Aoyama Gakuin, one of five outside accounting experts who reviewed Universal’s accounting record at the request of Reuters.

POTENTIAL BRIBERY

The Philippines National Bureau of Investigation has been examining the payments to Soriano as a potential bribery case.

People interviewed by the FBI have said U.S. investigators have also indicated an interest in whether the payments violated the Foreign Corrupt Practices Act. The FBI has been involved as there is evidence that funds paid to Soriano originated at a U.S. bank account of a Universal affiliate.

Universal founder and chairman Kazuo Okada has been in a legal dispute since early 2012 with U.S. casino magnate Steve Wynn. Okada had been an investor in Wynn Resorts (WYNN.O: Quote, Profile, Research, Stock Buzz) before the board voted to redeem his investment at a discount after finding his company paid $110,000 to entertain gaming regulators from South Korea and the Philippines. Wynn said that made Okada an unsuitable partner.

Okada has said he was singled out after raising questions about Wynn’s operations in Macau. The two sides remain locked in a legal fight that is playing out in courts in the United States, Japan and the Philippines.

Investigators from the Nevada Gaming Control Board have also been looking into Universal’s activity in the Philippines, people with direct knowledge of that investigation have said. Universal has a gaming license in Nevada as a maker of slot machines.

(Reporting by Nathan Layne, Taro Fuse, Kevin Krolicki and Teppei Kasai; Editing by Ian Geoghegan)

The exchange’s involvement is the first time the payments
have drawn the attention of Japanese regulators. The FBI and
Philippine authorities have been investigating $40 million in
payments to a politically-connected consultant in Manila since
last year.

The exchange, which oversees Universal’s Jasdaq stock
listing, has asked the company to explain how the payments were
treated in Universal’s financial statements for the fiscal year
to March 2010, said people with knowledge of the request, who
didn’t want to be named as the investigation is ongoing.

Universal has said it carried out its business in the
Philippines lawfully. The company, which also makes pachinko
machines, announced in December it filed a defamation lawsuit
against Reuters for reporting on its payments to Rodolfo
Soriano, a former consultant to the gaming regulator in the
Philippines. Universal declined to answer specific questions
about its accounting.

In a statement last month, Universal said there was a “need
to verify the suitability of accounting procedures”, and it
would revise its accounting if directed to do so by a panel of
three outside experts it has commissioned to look into the
payments.

One of the issues examined by the Osaka exchange involves a
$10 million payment that was wired to Soriano from a Universal
affiliate in Hong Kong and immediately circulated back to
Universal by a former employee in May 2010, as the company was
preparing to release its financial statements that June, said
the people with knowledge of the investigation.

The exchange is focused on whether Universal improperly
booked part of the payment as an asset on its balance sheet,
inflating its profits, the people said.

A spokesman for the Japan Exchange Group, the OSE’s holding
company, said it did not comment on any investigation underway
at a specific company. Soriano could not be reached for comment.

“NOTHING LOST, NOTHING GAINED”

Reuters was first to report in December that the $10 million
was wired to Soriano’s firm and immediately circulated back to
Universal’s accounts with the objective of closing the books on
a loan that Universal determined could not be recovered.

Universal has sued three former employees over the $10
million transfer, claiming they made the payment without
authorization.

A Universal representative told a Philippine congressional
hearing on the payments on Nov. 28 that the transaction had been
neutral to Universal’s accounts because a bank cheque for $10
million from HSBC, made out to Universal, arrived on the same
day $10 million was transferred to a firm registered in
Soriano’s name. The representative did not say who, if any
individual, signed the cheque.

“Nothing lost, nothing gained. But, as Universal
Entertainment, we don’t know what is this transaction,” Masahiro
Terada, the president of Tiger Resort, Leisure and
Entertainment, the company set up to operate the Manila casino,
told the hearing. “It came back. Return, return.”

But the exchange is questioning whether Universal sought to
avoid taking a charge for the loan as well as other aspects of
the accounting for the $30 million that remained with Soriano,
people with knowledge of the matter said.

The $10 million payment was booked as the repayment of a
loan to a firm called AZ Games International which had been
dissolved for several months at the time of the transfer,
according to people with knowledge of the transaction and
records viewed by Reuters. Universal originally lent the money
to AZ Games in 2008 to invest in Philippine casino clubs, said a
person with direct knowledge of that deal.

One of the problems from an accounting perspective is that
part of the $10 million was booked as a fixed asset related to
its plot of land for the casino on Manila Bay, said people with
knowledge of how the payments were accounted for.

That has raised questions over whether its profits were
boosted by not fully accounting for what would have normally
been a cost to dispose of a bad loan.

“It goes without saying, but if what’s on the balance sheet
does not represent a payment to a real counterparty – a real
asset with value – then that’s a problem,” said Mitsuru Tagaya,
a professor at Aoyama Gakuin, one of five outside accounting
experts who reviewed Universal’s accounting record at the
request of Reuters.

POTENTIAL BRIBERY

The Philippines National Bureau of Investigation has been
examining the payments to Soriano as a potential bribery case.

People interviewed by the FBI have said U.S. investigators
have also indicated an interest in whether the payments violated
the Foreign Corrupt Practices Act. The FBI has been involved as
there is evidence that funds paid to Soriano originated at a
U.S. bank account of a Universal affiliate.

Universal founder and chairman Kazuo Okada has been in a
legal dispute since early 2012 with U.S. casino magnate Steve
Wynn. Okada had been an investor in Wynn Resorts before
the board voted to redeem his investment at a discount after
finding his company paid $110,000 to entertain gaming regulators
from South Korea and the Philippines. Wynn said that made Okada
an unsuitable partner.

Okada has said he was singled out after raising questions
about Wynn’s operations in Macau. The two sides remain locked in
a legal fight that is playing out in courts in the United
States, Japan and the Philippines.

Investigators from the Nevada Gaming Control Board have also
been looking into Universal’s activity in the Philippines,
people with direct knowledge of that investigation have said.
Universal has a gaming license in Nevada as a maker of slot
machines.

(Reporting by Nathan Layne, Taro Fuse, Kevin Krolicki and
Teppei Kasai; Editing by Ian Geoghegan)

Instead of a world-class resort packed with Chinese high-rollers, Okada, 70, was sitting on a $300-million patchwork of reclaimed and undeveloped land next to the Manila airport that by the middle of 2009 was threatening to become a money pit, according to company records and people involved.

Crucial regulatory approvals were tied up in red tape. The provisional gaming license was flawed. No one could tell the architect how high he could build the gold-toned towers without endangering incoming aircraft.

To realize Okada’s goal of making the Manila casino more profitable than rival operations in Macau or Las Vegas, the project needed to win an exemption from corporate taxes in the Philippines. It also needed a presidential order giving Okada’s company, Universal Entertainment, the ability to own the resort outright as a foreign investor.

Universal executives believed Philippine officials had promised those concessions by the end of 2008 for a project expected to create more than 6,000 jobs. The Philippine gaming authority had given Okada a side letter to Universal’s provisional license in August 2008 saying it would make its “best effort” to get those approvals from then-Philippines President Gloria Arroyo.

It would mean hundreds of millions of dollars in additional profit each year if the approvals came through, according to an analysis of Universal’s presentations to regulators and investors.

By June 2009, however, the project was more than six months behind schedule and Okada’s patience was wearing thin. When Arroyo came to visit Tokyo, Okada saw her in a meeting arranged by the head of Philippine gaming regulator, Efraim Genuino.

“Get clarity on how long it will take to solve these problems on the spot and extract a promise,” a note prepared for Okada in Japanese by Universal executives said. It was not clear what was discussed in the private meeting.

BRIBERY INVESTIGATION

Reuters examined hundreds of pages of documents from Universal and Philippine regulators and interviewed nearly two dozen people involved in the project in Japan and the Philippines in reconstructing how Universal tried to push through its casino deal in the Philippines in the final months of the Arroyo administration. That deal is now the subject of investigations there and in the United States.

The record shows Universal won concessions on three critical issues that had threatened the $2-billion project in late 2009 and early 2010.

First, the Philippine Amusement and Gaming Corporation (PAGCOR), the gaming regulator under Genuino, brokered a land swap in November 2009 that Universal needed to move ahead with construction.

Then in February 2010, Arroyo signed a presidential order making it possible for foreign investors such as Okada to have 100-percent ownership of casinos. Around the same time, Arroyo’s office approved an application for corporate tax relief from Universal’s land-holding company. Both measures were expected but the delays had frustrated Universal executives, records show.

Universal pushed hard to get its final gaming license from Genuino – right up until June 29, 2010, a day before he left his post – but failed to get it.

As it raced to win final approval for its casino, Universal also funneled a total of $40 million in payments to Rodolfo Soriano, an aide to Genuino and a former consultant to PAGCOR who had become central to Universal’s operations in the Philippines by late 2009.

Of the total $40 million in transfers to Soriano, $10 million was immediately returned to the Japanese company in May 2010 to avoid writing off a bad loan extended to another company not involved in the casino project, as Universal closed the books on its fiscal year, records show.

The payments to Soriano, now under investigation as potential bribery, were first reported by Reuters.

It is unclear what happened with the $30 million paid to Soriano that remained with him. Soriano, who came to be known to Universal executives by his nickname “Boysie”, has not commented on the payments and could not be reached. There is no evidence the money was transferred to officials in the Arroyo administration or to others.

Universal booked $7 million of the payments to Soriano as a “consulting fee”, citing his help in winning the order signed by Arroyo allowing foreign casino ownership as partial justification for the payment, according to company documents seen by Reuters.

Okada broke ground on construction of the casino in January 2012, but PAGCOR under its new chairman has threatened to strip Universal of its license if evidence of bribery is found.

Universal said it conducted its business in the Philippines lawfully. Its lawyer, Yuki Arai, declined to comment further.

Genuino has been charged with misuse of public funds during his time at PAGCOR for allegations unrelated to the Universal payments to Soriano. He could not be reached for comment.

Arroyo has been under hospital arrest for charges related to alleged electoral fraud and misuse of public funds during her presidency. Her spokeswoman, Elena Bautista-Horn, did not return calls seeking comment.

Universal has sued three former employees claiming that $15 million transferred to Soriano – including the $10 million that was immediately returned – was unauthorized.

In early December, Okada and Universal announced they had filed a libel action against Reuters in Tokyo for reporting on the payments to Soriano in November.

UP FROM HARDSHIP

Okada, one of Japan’s most successful entrepreneurs, had risen through hardship and trusted his gut when it came to the biggest decisions.

His father died when he was in elementary school, a loss he said helped make him self-reliant. He made his first fortune fixing and selling American jukeboxes in the 1960s. He became a billionaire selling pachinko machines, a Japanese form of legal gambling.

By the late 1990s, the pachinko market had peaked and Universal began to look for ways to diversify.

Okada met casino impresario Steve Wynn in 2000. The two had to rely on a translator – Okada speaks little English – but both said they began a strong friendship. On a handshake, Okada became Wynn’s major investor.

“I got lucky,” Wynn, 70, told Nevada gaming regulators in 2004. “At first I could hardly believe it, but then $250 million came ‘zwinging’ in.” Wynn also said then he believed Okada to be a man of deep integrity. “Take the high road. Do the right thing,” he recalled Okada telling him.

Okada staked Wynn for a total of $380 million. That jump-started construction of the Wynn Las Vegas resort that opened on the site of the old Desert Inn in 2005, and the even more profitable Wynn Macau in 2006. By 2010, Okada’s investment had increased in value almost eight times and returned just over $600 million in dividends.

Macau in particular has produced stunning results. By 2011, the Macau market was bringing in almost $34 billion a year, making it more than five times larger than Las Vegas.

When Genuino visited Tokyo in 2007 to drum up interest in a $15-billion resort and casino complex PAGCOR wanted to develop, Okada jumped at the chance to invest, people involved said.

A year later, on the cusp of global recession, Universal paid just over $300 million for 30 hectares (74 acres) on Manila Bay. In August 2008, PAGCOR granted a provisional license to its casino operating company, Tiger Resorts, Leisure and Entertainment.

But Okada later realized the initial license fell short of what the company had sought, records show. Universal did not want to have to hire employees, including dealers, through PAGCOR and pay fees to the regulator as a placement service, according to letters sent from Universal to PAGCOR.

Universal also pressed PAGCOR to allow high-rollers coming on trips organized by junket operators to come into the casino without reporting their names to the regulator. Junket operators combine concierge and credit services for rich Chinese and have been central to the growth of gambling in Macau.

To promote Manila as an alternative to Macau, Universal wanted to make it a market where the winnings of Chinese gamblers would be “free of supervision,” according to a company presentation.

There was also some uncertainty about whether Wynn would join the Okada project. Okada said he wanted to bring Wynn in as a partner through late 2010. “At that time I trusted him. I showed him everything,” Okada told Reuters in October.

Wynn, however, was always skeptical about doing business in the Philippines, a person familiar with his thinking said. When Okada asked him to visit Manila in June 2010, he agreed to a briefing from Genuino. But he turned up in a polo shirt when everyone else wore business attire, a sign he saw himself as a spectator, the person said.

By early 2012, Wynn and Okada had split and begun a legal fight over Okada’s continued investment in Wynn’s company that is playing out in courthouses in the United States, Japan and the Philippines.

A Wynn investigation found Universal had paid $110,000 to entertain gaming regulators from Korea and the Philippines. The Wynn camp alleges that showed Okada was an unfit partner. Okada has said Universal entertains officials in line with its internal policy and denies any wrongdoing. The guest list that drew the attention of Wynn included Soriano, Genuino and Mike Arroyo, the husband of then-President Gloria Arroyo.

Wynn told Okada and other directors in 2011 that he did not think it would be possible to operate in the Philippines, consistently ranked as one of the most corrupt economies in Asia, according to a legal claim filed by Universal in Nevada.

“All of us are of one mind,” Wynn told Reuters. “We cannot be related to activities in the Philippines.”

LAS VEGAS IN MANILA

When Okada and the Universal board approved the Manila project in August 2008, they projected it would be a cornerstone of a string of resorts around the rapidly growing Asian market. They expected Universal would become a $9 billion company by 2014 with a listing on the Hong Kong stock exchange, according to notes from the board meeting.

Casino gambling revenues in the Asia-Pacific region have more than tripled since 2007, according to PricewaterhouseCoopers. The region is set to overtake the U.S. market as largest in the world next year when gambling revenues reach $67 billion from $58 billion in 2012.

Universal’s first designs were based on the Wynn casinos, featuring two wings in reflective gold glass. Plans included $150 million to build one of Asia’s largest aquariums and a “Kidzania” playland, with another $70 million for the “Manila Eye,” a massive Ferris Wheel.

But Okada’s plans for a “six-star” resort were immediately tested by a litany of problems on the ground in Manila. Engineers discovered 10 hectares (24 acres) of its site was reserved for road use and held by another developer, making building impossible.

It had been overlooked in the original purchase. “We didn’t realize at the time that we had the road problem,” a memo from June 2009 said. “Our land was crisscrossed by these roads like wormholes.”

Universal’s Manila staff worried there was no easy fix. After months of delays, Universal called in Genuino to negotiate a land swap between Universal, the local city of Paranaque and developer Asiaworld Properties Philippine Corporation.

“The right answer is to ask PAGCOR Chairman (Genuino) to be our public face in this matter,” the memo said.

Over the summer, Universal pushed for more frequent contact with Genuino. It set up a video conferencing facility so the two sides could talk more regularly. Universal also sought to make Genuino the conduit for passing on key documents to Arroyo’s presidential office, company documents show.

Around that time, Universal was also looking to break with Philippine law firm SyCip Salazar Hernandez and Gatmaitan, which it felt was charging too much and moving too slowly, according to company memos. As it prepared to ditch SyCip, Universal rebuilt its strategy around Soriano in what was described in an internal memo as a “shift to Boysie”.

In a statement, SyCip partner Imelda Manguiat, who handled the Universal account, said all transactions the law firm worked on were legitimate and lawful. She declined to comment further.

Shifting to Soriano meant reworking a structure that allowed it to circumvent the requirement that the landholding company behind the casino be at least 60 percent owned by Filipinos.

Records reviewed by Reuters show Universal had bankrolled the original investment meant to satisfy that foreign ownership requirement. This was done by depositing $4.4 million in a Banco De Oro account in 2008. That money secured a loan to a firm called Lex Development Corp, a shell company established by SyCip. Lex used the money to make its investment in the project. Universal covered interest on the loan, records show.

The holding was transferred in 2009 to Platinum Gaming and Entertainment, a Soriano-affiliated firm, records show.

OKADA IN CHARGE

Okada remained in charge of key decisions involving Universal and the Manila project, current and former employees said. On some mornings, employees would wait more than an hour to speak to him. Any expense over $36,000 had to be approved by the strategy board for the Manila project, records show.

Sometimes Okada’s hands-on style grated on his people. In one December 2009 meeting, Okada and Toshihiko Nishigaki, a hotel industry veteran brought in to oversee the Manila project, got into a heated discussion about responsibility for the project, according to three people in the room. Nishigaki asked Okada to step into the corridor and a shouting match ensued.

Within weeks, Nishigaki was gone. His departure was the start of a transition that put greater focus on a quicker return from a downsized project. Plans for the Ferris Wheel and other attractions that had promised to turn the casino into a tourist magnet were dropped or scaled back, people involved said.

Nishigaki did not respond to a letter seeking comment.

In November 2009, Okada hosted a PAGCOR delegation, including Soriano, in Las Vegas to watch Philippine national hero Manny Pacquiao retain his title in a welterweight championship fight. Universal picked up the tab for Soriano and the PAGCOR delegation at Wynn Las Vegas at a cost of $14,412, records show.

Then in January 2010, Okada led a delegation of Universal executives from Tokyo to the wedding of Genuino’s son, Anthony, at the Sofitel hotel in Manila. Okada sat at the same table as former Philippines First Lady Imelda Marcos. Executives who accompanied Okada said the intent was to show his support for Genuino and his politically ambitious family.

PAGCOR filed corruption complaints against Efraim Genuino and other former PAGCOR officials in 2011 alleging they diverted funds to help favored candidates for public office, including Genuino’s children.

In part, Genuino is accused of diverting rice Okada had donated to help typhoon victims in 2008 to support the candidacy of his sons, two years later. The rice was delivered to potential voters in bags with pictures of Anthony and Erwin, according to the charges.

Anthony was elected mayor of the city of Los Banos, while Erwin ran unsuccessfully in the May 2010 elections.

The Department of Justice recently said it would not pursue charges against Anthony and Erwin due to a lack of evidence. Neither of the sons could be reached for comment.

The $40 million in payments from Universal began moving to Soriano on January 14, 2010 with an initial installment of $10 million transferred to the bank account of Subic Leisure and Management, a Soriano-controlled company registered in the British Virgin Islands. Another $15 million was transferred to Subic Leisure on March 3, 2010, internal records show.

Then in late April and early May 2010 Universal recycled another $10 million payment through the same Subic Leisure route. Records show Universal brought the money back to its own accounts in a move aimed at covering a loan to a company called AZ Games International Corp that had gone sour, according to company records and people involved in the transaction. AZ Games was registered in the British Virgin Islands and operated with little oversight as a result. It had been dissolved months before, records show.

The final $5 million was paid to a Hong Kong shell company named People’s Technology Holding Ltd, of which Soriano was the sole shareholder. It was paid four days after Soriano met Okada and other Universal executives at a Chinese restaurant in central Tokyo to press for the transfer, people with knowledge of the meeting said.

Universal has filed two lawsuits against three former employees claiming the final $5 million and the $10 million that came back to Universal were not authorized. In rebuttals to the Universal lawsuits, two former executives – Mitsuo Hida and Takafumi Nakano – said they had been following orders in making the payments. Nakano said he was considering becoming a whistleblower under Japan’s anti-bribery law.

IN COMES AQUINO

At the end of June 2010, Genuino stepped down after a controversy erupted over his “midnight” reappointment by Arroyo. The election of President Benigno Aquino the month before posed potential complications for Universal.

Okada went to Manila to meet the new PAGCOR chief, Christino Naguiat, in August 2010. A month later, he hosted Naguiat at the Wynn Macau casino and covered $50,523 of expenses during a four-day stay. Universal does not contest it covered hotel rooms and other costs for government officials but maintains no laws were broken. Naguiat has said there was nothing inappropriate about his stay.

A memo from Okada’s August 2010 visit to Manila notes he was “trying to keep a good relationship with and feel comfortable with the new government.” But it also contained harsh words for his Manila-based staff.

“I think you should have made a prediction what would happen due to change of government and should have made necessary preparations,” Okada was quoted as saying.

Okada’s ambition to build casinos around Asia hinges in part on how the investigation of the Manila payments is resolved. The payments to Soriano are the subject of a Philippine Department of Justice investigation and two separate congressional hearings in the Philippines.

The Nevada Gaming Control Board said last month its investigation was progressing. Possible sanctions include a suspension of Universal’s gaming license.

Earlier this month, Universal signed a deal giving Philippine property firm Robinsons Land Corp a minority stake in its casino operating company and a majority stake in its Manila landholding company.

The Manila project – now known as Manila Bay Resorts after initially being dubbed “Okada Resort Manila Bay” – is scheduled to open in 2014, four years behind initial projections.

(Additional reporting by Farah Master in Hong Kong, Manuel Mogato and Rosemarie Francisco in Manila, and Sue Zeidler in Los Angeles; Editing by Bill Tarrant and Michael Williams)