ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintIcon Twitter
Companies

Nomura flags potential major loss at US unit

Subsidiary's client facing $2bn claim in wake of last week's share sell-off

Nomura Holdings said an "event" involving a U.S. unit has left the Japanese financial service provider facing a substantial loss.   © Reuters

TOKYO -- Nomura Holdings on Monday warned of a potentially hefty loss at one of its U.S. subsidiaries after the Japanese financial services company and global peers were caught up in a massive share selloff on Friday involving an American investment firm.

Nomura's shares closed down 16.33% in Tokyo after the company revealed the potential loss stemming from transactions with a U.S. client after an "event" on March 26. Nomura said the claim against the client -- understood to be private investment firm Archegos Capital -- was an estimated $2 billion, based on market prices last Friday. That could change as the market fluctuates and the transactions in question unwind. 

"Nomura is currently evaluating the extent of the possible loss and the impact it could have on its consolidated financial results," the financial services company said in a news release.

Credit Suisse made a similar announcement on Monday, and like the Japanese group, declined to name the client involved. "A significant US-based hedge fund defaulted on margin calls made last week by Credit Suisse and certain other banks. Following the failure of the fund to meet these margin commitments, Credit Suisse and a number of other banks are in the process of exiting these positions," the Swiss bank said.

Nomura did not elaborate on the nature of the event, though officials at the bank said the transaction  involved Nomura's prime brokerage business, which handles orders from hedge funds.

Nomura also canceled a planned bond issuance because of the potential impact on the company's financial results.

The announcement casts a cloud over the Japanese brokerage giant, which has enjoyed robust results over the past year thanks largely to its American operations. The company reported a record pre-tax profit of 396.8 billion yen ($3.6 billion) for April-December, up 45% on year. Almost all of the profit increase came from trading operations in the U.S. In its earnings announcement last month, Nomura said its performance was comparable with that of U.S. investment banks.

The company's shares had been trading at a three-year high last week.

CEO Kentaro Okuda, who assumed the position in April last year after working for many years as an investment banker, told investors in December that Nomura had grown out of the boom-bust cycle of the financial markets and would be able to generate steady revenues regardless of market conditions.

In its statement Nomura said its consolidated Common Equity Tier 1 ratio -- a measure of the strength of its balance sheet, was over 17% at the end of 2020 and therefore substantially higher than the minimum regulatory requirement.

"Accordingly, there will be no issues related to the operations or financial soundness of Nomura Holdings or its U.S. subsidiary," Nomura said.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends January 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more