Fitch Ratings has affirmed Nomura Holdings Inc.’s (NHI) and Nomura Securities Co., Ltd.’s (Nomura Securities) ratings, as follows:
NHI: Long-term foreign and local currency Issuer Default ratings (IDRs) at ‘BBB’ with Stable Outlook, Short-term foreign and local currency IDRs at ‘F2’, Individual rating at ‘C’, Support rating at ‘5’ and Support Rating Floor at ‘NF’.
Nomura Securities: Long-term foreign and local currency IDRs at ‘BBB+’ with Stable Outlook, Short-term foreign and local currency IDRs at ‘F2’, Individual rating at ‘C’, Support rating at ‘4’ and Support Rating Floor at ‘B’.
In Q4FYE09, the net loss for NHI was JPY217 billion and within Fitch’s expected range. As NHI raised fresh capital of JPY278 billion in March 2009, in the form of common equity, the group’s capitalisation remains adequate. While NHI has made net losses for five consecutive quarters and remains challenged in returning to profitability in the near term, the group’s leverage and liquidity remain satisfactory.
The volatility of the financial markets and the recession in Japan, together with slowing economic growth globally, will impede revenue growth while higher compensation and benefits expenses from the acquisition of Lehman Brothers business in Asia and Europe in September 2008 will pressure NHI’s profitability. Though the acquisition costs of Lehman Brothers businesses are expected to decline from Q1FYE10, and NHI is focusing on costs cutting and restructuring its workforce, the difficult operating environment challenges management in translating gains from the expanded global network into sustainable profitability.
The net loss in Q4FYE09 is mainly a result from write-downs of illiquid assets including real estate, impairment charges on equity holdings, acquisition costs related to Lehman Brothers acquisitions and restructuring expenses.
Among NHI’s five business segments, only the asset management segment was profitable making a small pre-tax profit of JPY500 million; all other business segments had pre-tax losses. The ‘fixed income and other’ trading desks in its global market segment which made losses for past four quarters, turned profitable helping offset the losses in other trading desks (though the global markets segment overall remained in the red for the fifth consecutive quarter).
NHI`s leverage and liquidity position remain adequate. It has disclosed preliminary capital ratios for the first time under Basel 2 framework, with Tier Capital Ratio of 11.3% and total capital adequacy ratios (CAR) of 18.1% as of FYE09. The gross leverage of 15.8x remains at a satisfactory level.
Nomura Securities, the flagship broker-dealer subsidiary of the group in Japan, returned to profitability in 4QFYE09, after two quarters of losses, backed by large trading gains, though the financial markets turmoil continued to affect its commission income. The gross leverage of 17.7x is higher than the 15.3x at FYE08, but remains acceptable, while the regulatory capital adequacy ratio strengthened to 268.8% from 226.4% in FYE08.
NHI is a prominent securities group in Japan with Nomura Securities as its lead unit, and the group’s franchise has expanded after the acquisition of Lehman Brothers’ businesses in Europe, Middle East and Asia.
D.C.