Reasons Why Nomura saw a loss of $2.3 Billion

Nomura Holdings which is a Japanese brokerage house has recorded a steep loss for the first quarter of 2021. Nomura had also booked a loss in the previous financial year amidst the Covid pandemic. Let’s look at the reason given by Nomura holdings regarding the loss and the further steps taken by the company.

About Nomura Holdings
Reason and Amount of loss
Past of Archegos Capital Management
Strategy of Nomura Holdings
Further Steps
Risk Management
FAQ

About Nomura Holdings

Nomura Holdings is a Japanese-based financial holding company that is one of the most important members of Nomura Group. The company was established in the year 1925 and has its headquarters located in Tokyo, Japan.

The company is part of the financial services, consulting and financial management industry. They provide their services to individuals, institutions and government customers on a global basis.

Some of the services provided by Nomura Holdings are Financial Services, Security Services, Retail Banking, Investment Management, Asset Banking and Asset Management.

Reason and Amount of loss

On 27 April 2021, Nomura Holdings has said that its losses from the collapse of a U.S investor Archegos Capital Management would amount up to USD 2.87 billion. This has put the Japanese-based Nomura Holdings under a steep loss.

In the first quarterly report, the company has recorded a loss of 245.7 billion yen which is related to the transaction with Archegos Capital Management. In relation to the same transaction, the company said that it will further book a loss of up to 62 billion yen in the current fiscal year.

In the first quarter, the overall loss booked by Nomura Holdings was around 155 billion yen (Around USD 1.4 billion). This is considered to be the first quarterly loss of Nomura Holdings in a year.

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Past of Archegos Capital Management

Nomura Holdings was one of the string of banks that were exposed to Archegos which is a New York-based investment company and family office which is run by Bill Hwang.

On 29 March 2021, Nomura holdings had already warned about the loss of around USD 2 billion which would arise from the transaction of the U.S client. Earlier Credit Suisse has also faced losses worth billions of dollars in regards to the transactions with Archegos.

Even the rival bank Swiss Bank UBS said on 27 April 2021 that it had lost an amount of up to USD 774 million from the trades which were linked to the same company. The quarterly loss of Nomura Holdings had increased to USD 2.3 billion as there was a decline in the value of the collateral.

As of 23 April 2021, the company has disposed of 97 % of the positions that are related to Archegos. The loss has occurred at Nomura’s prime brokerage unit through a business dealing with family offices and hedge funds.

Strategy of Nomura Holdings

Nomura Holdings has said that the company has reviewed all its positions in the units as well as the loans provided to the investors. The review has not shown any transactions which are problematic compared to Archegos.

The company said that it would focus on strengthening its framework in regards to the management of its risk by working together with the experts in the industry outside the company.

The CFO of the company Takumi Kitamura has said that this loss wouldn’t change the focus of the company on developing a business platform globally and doing business with the wealthy and risky investors.

He added that there wouldn’t be any change in their strategy of doing business especially with the overseas business that includes the trading business as well.

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Further Steps

The CEO of Nomura Holdings, Kentaro Okuda had expressed a deep regret in regards to the huge loss faced by the company saying that otherwise, it would have been a great year for Nomura Holdings. He has promised that it wouldn’t be repeated.

He added on saying that they have created a lot of anxiety for their customers and shareholders and said that they will take the issue very seriously and make sure that such as situation will not repeat in the future by upgrading their risk management.

Okuda said that his responsibility is to create a platform to manage risk in a better way. The huge loss was recorded after Okuda finished his first year as CEO of the company. He was formerly the head of Nomura’s U.S operations.

Risk Management

In order to strengthen the risk management, the company has appointed a new CEO who was the former senior of J.P Morgan. The company stated Christopher Willcox was the new co-CEO and President of Nomura Securities International.

Willcox has worked with J.P Morgan and is a former CEO of J.P Morgan Asset Management. He has also worked with the Citi group for a term of 15 years.

FAQ

Is Nomura a Japanese bank?

Nomura is a Japanese financial holding company and a principal member of the Nomura Group.

What are the big 4 investment banks?

JPMorgan Chase, Goldman Sachs, BofA Securities and Morgan Stanley are the big 4 investment banks.

What is the meaning of margin call?

A margin call is usually an indicator that one or more of the securities held in the margin account has decreased in value. When a margin call occurs, the investor must choose to either deposit more money in the account or sell some of the assets held in their account.

Conclusion

The company has decided to focus on providing prime brokerage services to wealthy investors and to continue to do business with family offices. Kitamura added on saying that Family offices will continue to be one of the most important clients for them.