Nomura Holdings Inc. is taking steps to strengthen risk management, after the largest Japanese brokerage booked a surprise ¥39 billion provision from transactions years ago while reeling from its losses related to the collapse of U.S. family office Archegos Capital.
The latest provision, which Nomura said was related to legacy transactions in the U.S. from before the global financial crisis in 2007 and 2008, caused the company's net profit to fall 95% in the September-end quarter to ¥3.2 billion from a year earlier. Nomura CFO Takumi Kitamura declined to disclose details of the charge at an Oct. 29 conference, saying "that's an ongoing issue."
"The group CEO and management of Nomura see enhanced risk management as a key management project and one of the top priorities for the company over the medium to long-term," the company said in a same-day press release.
It has created a board-level risk committee comprising outside directors and a nonexecutive director, the company said, following the Archegos incident. It is also revamping the organizational structure and realigning headcount in some departments.
Nomura booked a loss of ¥65.4 billion from unwinding the leveraged bets associated with Archegos in the previous quarter ended June 30, when the company's net profit fell 66% from a year ago. For the fiscal first half ended Sept. 30, Nomura's net profit fell 75% to ¥51.7 billion.
Both wholesale and retail banking segments reported pretax profit decline in the fiscal second quarter, while the investment management arm posted growth.
The pretax profit from its retail segment slid 26% to ¥17 billion over weak sales of stocks and bonds in and outside Japan. Its wholesale segment reported a 62% plunge in pretax profit to ¥25 billion, as weaker fixed-income operations in the U.S. offset growth in its M&A business.
On the other hand, the pretax profit from its investment management business grew 25% to ¥15 billion. It said its assets under management rose to a record ¥67.8 trillion while management fees increased.
"Nomura had an OK quarter except for the provision," Michael Makdad, an analyst at Morningstar, said. "The environment for fixed income should be better in the fiscal second half than it was in the second quarter, and the environment for investment banking such as M&A remains very good."
Nomura also said that it plans to purchase up to 80 million of its own shares from the open market for up to ¥50 billion from Nov. 16 through end-March 2022.
As of Oct. 28, US$1 was equivalent to ¥113.29.