Japan's biggest brokerage Nomura to book ¥313 billion in Archegos losses

Nomura Holdings Inc. will book ¥313 billion ($2.9 billion) in losses tied to the collapse of Archegos Capital Management, as Japan’s biggest brokerage vows to strengthen its risk management in the wake of the debacle.

Of the total, ¥245.7 billion ($2.3 billion) was logged in the three months ended March 31, leading to a quarterly net loss of ¥155.4 billion — its biggest since 2009. The remaining ¥62 billion will be booked in the current fiscal year, the Tokyo-based company said in a presentation Tuesday.

Nomura has exited over 97% of its positions with a U.S. client that Bloomberg understands to be Bill Hwang’s family office.

The overall toll is higher than the potential $2 billion loss flagged by the Japanese firm a month ago, only trailing Credit Suisse Group AG’s $5.5 billion. It blemishes what would have been a bumper first year in charge for Chief Executive Officer Kentaro Okuda, raising questions about Nomura’s risk-taking as it seeks to compete with global rivals.

“We have caused grave concerns to our stakeholders, including investors and clients,” Okuda told reporters in a surprise appearance at the earnings briefing.

Nomura said it will conduct a third-party review of its risk-management framework for its wholesale business, and will strengthen global risk controls. An internal review of existing prime brokerage transactions showed no other similar transactions, it said in a presentation.

Ambitions intact

Still, Chief Financial Officer Takumi Kitamura said the firm would continue to deal with family offices. Okuda, for his part, signaled that Nomura’s global ambitions remained intact.

“There is no major change to our overall strategy over wholesale business including overseas,” the CEO said. “Our Japanese clients’ interest in overseas markets is very strong and they are looking at the U.S. market. It’s important to build a solid platform in the U.S.”

Aside from Archegos, Nomura has benefited from a boom in trading and investment banking over the past year as the pandemic upended markets and industries. Profit totaled ¥153.1 billion for the 12 months, down 29% from a year earlier.

The company also completed a multi-year cost-cutting initiative a year ahead of schedule, Kitamura said.

The global markets business bore the brunt from Archegos, with equities losing ¥121.1 billion in the fourth quarter.

Fixed income generated ¥84.3 billion in revenue, up 8% from a year earlier. Investment banking saw revenue triple to ¥36.1 billion. Retail revenue climbed 9%, as Japanese investor sentiment improved.

Other financial firms have also been hurt by the blowup, which saw almost $20 billion vanish from Hwang’s family office in two days after it piled up leveraged bets on stocks.

UBS Group AG posted an unexpected $774 million hit on Tuesday. Morgan Stanley lost $911 million, and Mitsubishi UFJ Financial Group Inc. has flagged a $270 million charge.

Lessons learned?

Like Credit Suisse, Nomura is taking steps to deal with the fallout. The firm is tightening credit for hedge fund clients as part of a review of its prime brokerage, which may result in a scaled-back business, people familiar with the matter said before the earnings release. Japanese regulators are conducting their own review.

Nomura named Christopher Willcox as co-chief executive officer of its troubled Americas unit on Monday, a move aimed at enhancing risk management. Willcox was previously head of JPMorgan Chase & Co.’s asset management arm.

Shares in Nomura closed 2.1% higher before the results. The stock has slumped 19% since the episode, paring its 12-month gains to 36%.

Potentially weighing on the stock was that Nomura refrained from announcing a widely expected buyback. Analysts at SMBC Nikko Securities Inc. had flagged that possibility, saying it may do so “out of consideration for the authorities and ratings agencies.”

Moody’s Investors Service, which downgraded its outlook on Nomura to negative from stable last month, said the brokerage’s results were “credit negative.”