Business / Corporate

Moody's boosts Nomura credit rating for first time since 2005

Bloomberg

Nomura Holdings Inc.’s credit rating was raised by Moody’s Investors Service for the first time since November 2005 as Japan’s largest brokerage showed improved profitability.

The company’s long-term rating was increased by two levels to Baa1 from the lowest investment grade of Baa3, Moody’s said in a statement Wednesday. Nomura’s capitalization had benefited from a cost-reduction program and lower holdings of illiquid assets, the agency said.

The move follows the ratings company’s two downgrades of Nomura since 2009, when securities firms worldwide were roiled by the global financial crisis. Chief Executive Officer Koji Nagai has pared expenses and overseen a profit resurgence since he took the post in August 2012, although earnings growth has stalled this year as waning demand for Japanese stocks erodes brokerage commissions.

“The announcement comes as somewhat of a surprise, because a two-notch upgrade was not a given,” Takehito Yamanaka and Ryota Muranaka, analysts at Credit Suisse Group AG in Tokyo, wrote in a report dated Wednesday. The higher credit rating is positive for Nomura’s fixed-income and derivatives businesses, they said.

The statement from Moody’s came after Japan’s stock market closed Wednesday. Shares of Nomura fell 1.2 percent to ¥610.5 as of 10:15 a.m. in Tokyo, taking their slump this year to 25 percent. The benchmark Topix index lost 1.7 percent on Thursday, while Daiwa Securities Group Inc., which Moody’s rates Baa3 with a stable outlook, slid 2.1 percent.

Nomura’s net income almost doubled to ¥213.6 billion ($2 billion) in the year ended March, the highest in eight years, amid a stock-market boom stemming from Prime Minister Shinzo Abe’s economic stimulus measures. Profit fell 70 percent to ¥19.9 billion in the three months ended June, company figures show.

The Moody’s upgrade “was prompted by the improvement in Nomura’s financial metrics, driven in turn by ongoing changes to its business strategy and business model,” the ratings company said.

The ratings change comes more than a year after Fitch Ratings Ltd. also boosted its assessment of Nomura. Fitch raised the brokerage’s debt rating two levels to A- in September 2013, citing law changes that allow for government bailouts of Japanese securities companies.

The amendments, which were passed in June 2013 and took effect in March, make brokerages and insurers eligible for emergency capital from the state-run deposit insurance agency.

A better credit rating will benefit Nomura’s fixed-income operations, the firm said in a presentation to investors on Aug. 1. The company set an earnings-per-share target of ¥100 for the year ending March 2020 in the presentation, having achieved an earlier goal of ¥ 50 a share two years before its March 2016 deadline.

“We expect to benefit from the upgrade through lower funding costs and further growth across our client businesses as we will meet the counterparty credit ratings requirements of more potential clients,” Nomura said in an emailed statement on Wednesday.

The company’s targets for March 2020 suggested “ambitious goals” for its wholesale division that could raise future risks and re-introduce earnings volatility for that segment, Moody’s said.

The agency cut Nomura’s rating in March 2012, when earnings were under pressure from costs that swelled after it bought bankrupt Lehman Brothers Holdings Inc.’s Asian and European operations. That year, the firm was also hit by an insider-trading scandal that prompted the financial regulator to order an overhaul of internal controls and led Nagai’s predecessor to step down.

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